On November 9, at the supporting special event of the 9th China International Crude Oil Trade Conference co-sponsored by the Foreign Trade Development Bureau of the Ministry of Commerce, the Shanghai Futures Exchange and the Shanghai Futures Energy, industry experts conducted an in-depth discussion on the current market situation and believed that my country It is necessary to further enrich the varieties of energy derivatives and provide tools for related industries to avoid risks.
The traditional business model of the energy industry has been subverted
Talking about this year’s crude oil market, Deputy General Manager and Chief Executive Officer of Shandong Longzhong Information Strategy officer Yan Jiantao said that under the combined influence of factors such as the epidemic, economic demand, inventory and geopolitics, crude oil prices have always been in a relatively unstable state. In particular, geopolitical factors and the epidemic have had a serious impact on the market this year. In his view, the epidemic mainly acted as a “catalyst”, causing a sharp decline in global crude oil demand. At the beginning of this year, in order to prevent the further spread of the epidemic, many countries adopted blockade control measures, which seriously affected transportation and logistics, and in turn hit global crude oil consumption.
According to Han Bing of PetroChina Sales Company, in April this year, the period when prevention and control measures were the most stringent, global crude oil demand fell by even 20%. “Later, as the epidemic eased, global crude oil demand gradually entered the recovery stage. But currently, global crude oil demand in 2020 still declined by about 8.4% compared with last year, and demand is likely to continue to shrink next year.”
Under such circumstances, domestic and foreign institutions have recently generally believed that the price of WTI crude oil will remain near US$40/barrel by the end of this year and will rise slightly next year. However, Yan Jiantao suggested that the market should be more cautious about future crude oil prices.
“After all, this year, under the combined effect of the epidemic and geopolitics, the trade link of the entire crude oil market has been greatly impacted. Especially in the U.S. market, in March this year, the epidemic affected transportation and logistics. Under this situation, there were even situations where the oil products produced by producers could not be transported out, and because the storage cost was too high and there was nowhere to store it, they had to pay people to take it away.” He said that this was actually the case in the Cushing area later. Crude oil inventories reached highs, one of the reasons why negative oil prices eventually occurred.
In Yan Jiantao’s view, the emergence of negative oil prices has subverted the business model of the energy industry to a certain extent. Because after negative oil prices, people discovered that not only may the crude oil they produce not be sold, but they may even encounter rebates, which directly affected the capital market’s confidence in oil companies.
The importance of energy derivatives instruments is highlighted
In addition, Yan Jiantao also found that because the capital market is not optimistic about oil companies, the correlation between stock prices and oil prices is somewhat strengthen. “Originally, the correlation between stock prices and oil prices was only about 10%, but recently the correlation between U.S. oil company stock prices and oil prices is 50%-60%. This not only means that crude oil investment has decreased after the emergence of negative oil prices, but also related companies are facing financing difficulties. It also highlights the importance of crude oil derivatives.”
According to him, when bank creditors are worried about the bankruptcy of small and medium-sized U.S. oil and gas companies, they often require them to sell nearly four or even eight quarters of production in advance. Go, in this case, the relevant companies need to hedge. Because of this, the price of hedging has become the upper limit of U.S. crude oil. Yan Jiantao told the Futures Daily reporter that the derivatives market is not only an important hedging channel for U.S. oil and gas companies, but also one of the financing channels.
According to reports, in foreign countries, in addition to companies conducting hedging, countries sometimes also do this. For example, Mexico, which did not participate in OPEC+ production cuts this year, has the confidence not to cut production because it has the habit of hedging its crude oil exports through options. In Yan Jiantao’s view, the most important thing for oil companies or the oil industry to do in the face of increasing challenges is to improve their competitiveness, and making good use of crude oil derivatives tools is undoubtedly important to improve this ability. One of the measures.
Since its listing more than two years ago, Shanghai crude oil futures have not only withstood the test of various geopolitical risks and extreme events at home and abroad, but as the trading mechanism has been continuously improved, its operation has become more stable and its functions have become more effective. . Yan Jiantao told reporters that in April this year, when global commodity prices, especially crude oil prices, fluctuated significantly, many domestic listed companies increased their participation in hedging.
Wang Fenghai, general manager of the Shanghai Futures Exchange, also said in his speech at the conference that this year, when the maximum decline in international crude oil prices is generally more than 70%, most domestic and foreign energy companies actively use Shanghai crude oil futures to hedge price risks.
On June 22 this year, Shanghai Energy listed low-sulfur fuel oil futures. In the eyes of industry insiders, this not only improves my country’s energy derivatives system, but also improves the quality of the futures market in serving the real economy while actively responding to changes in the ship fuel industry.
It is understood that as of the end of October, the cumulative trading volume of low-sulfur fuel oil futures was 4.9307 million lots, of which legal person positions accounted for nearly 80%. “This is very commendable for a variety that has only been on the market for more than four months. It also reflects the recognition of this variety by the market, especially by physical enterprises.” said the above-mentioned person.
On November 2, the first batch of low-sulfur fuel oil futures warehouse receipts (4,090 tons in total) were issued at the bonded oil depot of Sinochem Xingzhong Petroleum Transshipment (Zhoushan) Co., Ltd.� Generate. “This batch of fuel oil was produced at the domestic CNOOC Zhoushan Refinery. After export tax rebates, it was registered as a futures warehouse receipt by PetroChina International Co., Ltd. in the Zhejiang Free Trade Zone. This not only marks the successful entry of domestic low-sulfur fuel oil into the futures market, but also It means that China’s prices have taken another solid step toward the world.” said the person above.
Domestic derivatives need to be further enriched
In the current market environment, participants generally expressed their expectation that my country’s energy derivatives will be further enriched.
In Han Bing’s view, the time is ripe for the launch of refined oil futures in particular, and he looks forward to it being launched as soon as possible. According to her, my country’s refined oil consumption is expected to peak around 2025. Taking into account the current acceleration of energy iteration, the strong development momentum of alternative energy, and the intensification of oversupply of refined oil products, judging from the experience of Japan and South Korea, market competition will become more intense in the future, and survival of the fittest will become inevitable.
In fact, as the market access and marketing network approval thresholds in the refined oil circulation field continue to decrease, the competitive landscape of the refined oil industry is being restructured. As the oil and gas pipeline network reform is fully implemented, various types of capital accelerate the deployment of the entire oil and gas industry chain, and market competition will enter a period of stock competition.
Under such circumstances, Han Bing believes that companies with scale advantages, specialty products, and leading technologies will survive and develop. To this end, when the current international environment is unfavorable and domestic demand growth starts, relevant domestic enterprises should attach great importance to basic technology research and development, develop core technologies, and deploy emerging industries after completing the vertical industrial chain layout. This requires industry competition entities to be committed to relying on physical sales of gas stations, with the help of capital markets and virtual markets, to intensively study international trade, futures markets and other fields closely related to the refined oil business, and to play the role of price discovery, value creation, and risk identification. Explore the financial attributes of refined oil products and build a value platform for coordinated development and mutual promotion. Therefore, it is very important for refined oil futures to be listed on the market. She called on the major operators in the industry to jointly promote the launch of swaps and refined oil futures.
In the view of professionals in the field of oil and gas pipeline networks, the pipeline network is the fulcrum of the entire oil and gas market. The establishment and layout promotion of the National Pipeline Network Company is conducive to utilizing this fulcrum to connect upstream and downstream and the entire market. Leverage the opening up and competition of more market entities. Sources related to energy in the last issue said that the pipeline network is an important spot infrastructure and futures is an important financial infrastructure. Increased cooperation between the two will help to better play the decisive role of the market in resource allocation and better realize financial services. real economy.
In the eyes of market participants, this year’s negative oil prices will not only subvert the traditional business model of the energy industry, but will also bring about a transformation and reform of the entire futures trading system. In view of the last major change in the derivatives market, which directly led to the launch of natural gas futures, and the global influence of natural gas futures trading has also continued to expand, Yan Jiantao finally said that he looked forward to the listing of domestic natural gas futures as soon as possible. </p
