Just after the international oil price stabilized at US$40 for several months, it suddenly fell sharply and continuously starting last week, with a drop of more than 10%, hitting a new low in more than four months.
International oil prices fell sharply again at the opening on the 3rd. As of press time, WTI, the main futures of the U.S. crude oil contract, was temporarily quoted at 34.78 US dollars/barrel. It opened at 35.24 US dollars/barrel and closed at 35.72 US dollars/barrel last Friday. Once again Falling; Brent crude oil’s main contract futures were temporarily quoted at US$37.04/barrel, opening at US$37.37/barrel on the 3rd, and closing at US$37.94/barrel last Friday.
01. Multiple reasons led to the collapse of oil prices
Due to the European and The epidemic in the United States worsened sharply again last week, and European countries have adopted “blockade” measures. Negotiations on the U.S. fiscal stimulus plan have reached a deadlock, which may stifle economic recovery and thus have a major impact on the outlook for crude oil demand; at the same time, the rate of increase in crude oil production after the end of Libya’s force majeure Far exceeding market expectations, OPEC production increased and U.S. crude oil inventories increased significantly, further intensifying concerns about oversupply of crude oil.
The number of new coronavirus infections in Europe continues to rise and has once again become the center of the global epidemic. European countries have adopted “blockade” measures. At present, at least twelve European countries, including Germany, France, Italy, and Spain, have announced “blockade” orders to curb the epidemic. In addition to Europe, the epidemic continues to break out in the United States. Last week, the number of newly confirmed cases in the United States exceeded 500,000 for the first time, setting a new record for single-week growth since the outbreak began.
As the world enters new anti-epidemic lockdowns, market expectations for economic recovery have deteriorated; in addition, a new round of U.S. fiscal stimulus plans has emerged as the White House has been unable to resolve differences with Senate Republican colleagues and congressional Democrats. Failure to reach an agreement before the November 3 election will also affect the recovery of the US economy. All these have a major impact on the outlook for crude oil demand and increase downward pressure on oil prices.
Another important factor affecting oil prices, the OPEC+ oil-producing countries production reduction agreement, has also seen great changes at this time.
First of all, Libyan National Oil Company President Sanalla said last Friday that Libya’s current crude oil production is 800,000 barrels per day, and crude oil production will reach 1 million barrels per day next month, hoping to reach 1 million barrels per day in 2021. It reached 1.3 million barrels per day at the beginning of the year, and it is confident that crude oil production will reach 1.6 million barrels per day by the end of 2021. For war-torn Libya, resuming crude oil exports after the ceasefire will be beneficial to economic development, but for the crude oil market, it will face the risk of new supply and demand imbalances.
There is also news that the three OPEC members, the United Arab Emirates, Kuwait and Iraq, have doubts about whether they can continue to significantly reduce production next year, and are discussing whether the existing oil production cuts should be extended to 2021.
According to Reuters, the current agreement will reduce production by 2 million barrels per day starting from January next year, but both Saudi Arabia and non-OPEC member Russia agree to reduce the current level of about 7.7 million barrels per day. Production cuts extend into next year. Sources said that the United Arab Emirates and Kuwait have traditionally supported Saudi Arabia’s stance, but both countries are feeling pressure from tightening oil production policies in 2021 because they believe that the production cuts are too large to sustain.
The indecision of the three countries has made it more difficult for the OPEC meeting to decide on production cuts in November, and may cause further friction within OPEC+, including its allies, making the market supply and demand balance even worse when global demand is weak.
Oil prices this week are not only affected by API, EIA crude oil inventories, the epidemic in Europe and the United States, and OPEC oil-producing countries, but also the important variable of the US election. If Democratic presidential candidate Joe Biden wins the election and eases sanctions imposed by current President Trump on Iran, it will open the door to Iran’s crude oil exports of more than 2 million barrels per day.
02. Two major energy agencies warned of a “protracted war”
The continuous decline in oil prices has caused some analysts to predict next year and even beyond. The oil industry has made negative assessments for several years. At the same time, due to changes in international oil prices and the future situation of the industry, domestic oil companies
1. Industry recovery may be delayed
The International Energy Agency (IEA) stated that the recovery of global energy demand may be delayed. to 2025. The IEA released a report last month saying that due to the epidemic, world oil demand is expected to fall by 8% year-on-year this year, with daily demand reduced by 8 million barrels. A full rebound in global energy demand may be delayed until 2025.
At the same time, OPEC has once again lowered its oil demand forecast for 2021, saying that with the stalemate of the new crown epidemic, they believe that the recovery of world oil demand in 2021 will be much slower than previously thought, which intensifies This reflects the pressure the organization and its allies face in balancing market supply and demand.
2. Upstream investment continues to shrink
Weak oil demand and the fall in international oil prices have led to the drying up of global energy investment this year. According to figures from GlobalData, a well-known data statistics and analysis organization, as of May 10 this year, the total amount of capital expenditures announced worldwide to reduce this year has reached approximately US$120 billion. According to the International Energy Agency, upstream investment in oil and gas will fall by 35% this year.
The direct consequences of the reduction in upstream investment are that on the one hand, the discovery of new oil and gas resources has dropped sharply;According to statistics from Rystad Energy, compared with the same period in 2019, global oil and gas conventional resource discoveries decreased by 42% in the first half of this year, which was the fewest discoveries in the 20 years since the beginning of this century; on the other hand, the amount of oil field development and production operations is huge As the scale declines, oilfield services companies may continue to suffer losses, and the layoffs that have already begun to take shape will continue until at least next year.
3. Chinese oil companies have enhanced several major capabilities
When international oil prices plummeted in March and April this year, domestic oil and other People in finance and other related industries have predicted the “low oil price phenomenon.” The main point is that oil prices will be difficult to rebound significantly in the short term, and 30-40 US dollars/barrel will become the norm for a period of time, which is a big change for oil companies. A protracted war, a war of attrition, a tug-of-war.
Does low oil prices mean that we only buy but do not produce? Or less birth? The reality that China faces is that our country is the world’s largest energy consumer and importer, and its dependence on foreign oil and natural gas is as high as 70%. Ensuring long-term energy security is the fundamental task and top priority of state-owned oil companies.
On the one hand, the downturn in international oil prices is also a great opportunity for Chinese companies to reserve oil at low cost and even acquire high-quality oil fields internationally. This requires companies to enhance their oil storage capabilities and acquire overseas oil fields. Vision and negotiation skills.
On the other hand, increasing oil and gas exploration and development is a strategic measure to improve my country’s energy security based on bottom-line thinking. Continuing to ensure investment and results in exploration and development during the period of low oil prices requires more funds and better talent and technology. This requires state-owned oil companies to change their thinking, expand opening up, persist in reform, attract more investment entities, absorb more cross-professional and cross-industry talents, and develop oil and gas exploration and production technologies suitable for my country’s resource conditions.
As a practitioner, we must recognize the reality that oil prices have been fluctuating at low levels for a long time and the industry is accelerating changes. We should also be clearly aware that the global energy transformation is a slow and gradual process, and there are extreme differences between different countries and regions. Large imbalances cannot be resolved overnight. my country is a major energy country, and the formulation of energy strategies must be consistent with specific national conditions and the overall national economic and social development. Low oil prices are certainly a huge challenge for enterprises and practitioners, but they are also an important opportunity to deepen reform, promote transformation, and achieve high-quality development.
</p
