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There is no doubt that water is better than oil The expensive era has come, and oil prices have collapsed!
After plummeting 10% last Friday, oil prices have continued to fall in panic. At the opening of trading on Monday, the price of Brent crude oil futures plummeted from US$45.27 to US$31 per barrel, an intraday drop of more than 31%, setting a new intraday drop record since the 1991 Gulf War.
After oil prices collapsed, the global capital market also collapsed.
When U.S. stocks opened, the S&P 500 index fell 7%, triggering the circuit breaker mechanism and suspending trading for 15 minutes. The stock markets of other countries have also plunged, and the screen is full of green.
Also on March 9, the domestic commodity futures market closed with a collective plunge in energy and chemical products. The coefficients of bulk textile raw materials such as crude oil, PTA, methanol, and EG fell to the limit.
Who will “save” the polyester market? Don’t panic, let the bullets fly for a while!
Saudi Arabia suddenly launched a “suicidal” oil price reduction campaign over the weekend, causing an epic collapse in international crude oil prices and dragging global stock markets into a plummeting mode. Open the market software and the market will be full of ink. Many market participants are panicking: Should they “get on the bus” or “get off the bus” by bargain hunting?
As for the cause of “Black Monday”, the editor learned that while the COVID-19 epidemic continued to spread and impacted the global economy, the supply side of the crude oil market faced price cuts due to the failure of production reduction negotiations. War and war “turned from decrease to increase”, the resonance of many factors intensified the panic in the market, and the global market was wailing as a result.
With the start of the oil price war, market prices have fluctuated significantly, especially in the face of the situation where WTI crude oil futures quotes have fallen by more than 30% in the past two days. Many private oil refining companies had to urgently adjust corresponding hedging measures.
Under such circumstances, it is a good choice to appropriately apply derivatives for hedging. Especially for a production-oriented country like my country, in addition to oil refining companies, there are many downstream chemical industries that will also face new business challenges.
According to the reporter’s understanding, on March 9, the futures of downstream products such as PTA, asphalt, methanol, and ethylene glycol all fell to the limit. For companies, it almost means losing one ton of sales. Ton. Under such circumstances, many oil refining companies have increased their short positions in futures products such as PTA, asphalt, and methanol. On the one hand, they are locking in processing profits, and on the other hand, they are also using the futures market to expand sales. It is understood that on March 9, amid the sharp market fluctuations, the demand for corporate crude oil hedging operations was particularly high. Several analysts in the energy field of futures companies revealed to reporters that many companies originally had only 60% of their spot positions for futures hedging. Now, in view of the violent fluctuations in oil prices, this proportion has been increased to 80%. Therefore, futures companies and exchanges are required to increase their investment in futures. Their hedging amount.
However, according to a not-so-named crude oil analyst at a futures company, such an operation may be excessive. In particular, the current hedging strategies of some oil refining companies still have a certain element of speculation. For example, they will simply use the profit and loss of futures operations as the basis for hedging assessment, and the hedging position will significantly exceed the actual risk exposure of the company. Under the misconception that “hedging can hedge all risks”, they will frequently make profits from short-term operations. Therefore, on March 9, they also continued to correct the erroneous hedging measures of some oil refineries and reduce their unnecessary futures operational risk exposure as much as possible.
At the same time, according to Xingshi Investment’s recent market analysis: the sharp drop in crude oil prices was directly caused by “OPEC+’s failure to reach an agreement to limit production and Saudi Arabia’s sharp price cuts to seize the market” on the supply side. The pessimistic expectation of a decline in demand due to the spread of the global epidemic is also an important factor. The short-term response is falling demand and deflationary panic, but the long-term trend remains unchanged.
In the medium term, the decline in crude oil prices will help reduce the production costs of enterprises, thereby increasing the profits of related enterprises; however, this impact is lagging and may occur in the future. We can really see it in one or two quarters; in the short term, the sharp decline in A shares following the global capital market actually reflects the decline in demand and the fear of deflation in the future. Therefore, whether it is oil prices or capital markets in the future, the key lies in the degree of prevention and control of the epidemic in various countries around the world. If the epidemic can be well controlled, then the decline in demand may only be a short-term fluctuation rather than a long-term trend.
From our perspective, we believe that the domestic epidemic has been initially controlled, and many of China’s practices also provide templates for overseas countries to refer to, such as those affected by the epidemic. Italy, a relatively large country, has taken compulsory measures such as city closures to curb the continued spread of the epidemic.. Therefore, we are still confident that the epidemic will be controlled in the future. As demand recovers in the future, the impact of this black swan event on the capital market will gradually be lifted.
During the period of low oil prices, the market also needs to beware of military black swan events such as geopolitical conflicts. At present, there is still nearly a month until the last production cut expires, and the situation is still relatively variable. It is recommended not to blindly buy the bottom, as the risk is too high.
As for PTA, MEG, polyester and other varieties, the collapse of oil prices has led to cost collapse, and the prices of many varieties are facing reshaping. For example, PTA, the processing of each link is not considered for the time being. In the early period when the price has changed significantly, the converted price is about 3600-3700 yuan/ton, so it is recommended to generally maintain a bearish mentality. Editor’s suggestion: Let the bullets fly for a while! </p