In the past week, U.S. crude oil held its support near 49.31 and rebounded. The market generally expected that the impact of the public health incident on the economy and demand would be limited. Global stock markets rebounded sharply, and European and American stock markets repeatedly Hitting a record high, providing support for oil prices; in addition, the market expects that OPEC+ oil-producing countries will most likely expand production cuts, which will also provide opportunities for oil prices to rise.
Both U.S. and crude oil recorded their best performance since the week of December 6, 2019; U.S. crude oil rose 3.79% this week, reaching a maximum of $52.34/barrel, a new high since February, and closed at 52.25 US dollars per barrel; Brent crude oil accumulated 5.03% this week, the first weekly rise in six weeks, reaching a maximum of 57.53 US dollars per barrel, which was also a new high in the past two weeks, closing at 57.24 US dollars per barrel.
European and American stock markets have repeatedly hit record highs, and Asian stock markets are also optimistic, improving demand prospects
Public health Concerns about the incident once caused crude oil prices to fall by about 20% since hitting the year’s high on January 8. However, as Chinese factories resumed production and the Chinese government relaxed monetary policy, these concerns cooled significantly this week, and global stock markets rose. This eased concerns about the outlook for crude oil demand and provided an opportunity for oil prices to rebound.
(Daily chart of main U.S. crude oil contract)
As for Asian stock markets, the Shanghai Composite Index rose 1.43% this week. It rose for the second consecutive week and has now recovered most of its post-Spring Festival losses. Hong Kong’s Hang Seng Index rose 1.50% this week; South Korea’s Composite Index rose 1.43% this week. In terms of European stock markets, the Stoxx 600 Index rose 1.49% this week and hit a record high at 432.26 points during the session; the US S&P 500 Index rose 1.58% this week and hit a record high at 3385.09 points during the session; Dow Jones The industrial index rose 1.02% this week and hit a record high at 29568.57 points.
Jim Ritterbusch, president of Ritterbusch and Associates, said in a report that the large-scale position liquidation action that drove oil prices sharply lower in January may have ended, and was replaced by speculators who recently entered the market accumulating positions and short positions. repair.
KeyBanc Capital Markets analyst Leo Mariani said that this increase will undoubtedly inspire more confidence in the oil market.
Rebecca Babin, senior equity trader at CIBC Private Wealth Management, said the market increasingly feels that we have hit the bottom. The oil market has already priced in the worst-case scenario and is likely to show greater resilience as long as conditions outside China do not intensify.
Edward Moya, senior market analyst at OANDA in New York, pointed out, “Oil prices appear to have stabilized this week due to market optimism that OPEC+ will once again tighten output at all costs, and also expect that the public health crisis is approaching. Peak.”
However, CMC Markets market analyst Yang Yan pointed out that “Sentiment across the Asia-Pacific region remains cautious. Due to the uncertainty of public health events, the extent of the hit to global oil demand is still unclear.”
OPEC+ oil-producing countries are likely to expand production cuts
Another factor supporting the rise in oil prices this week is The market generally expects that OPEC+’s major oil producers will expand production cuts to cope with declining demand; although the Russian government stated that it has not yet made a decision on further production cuts. But industry sources said a growing Russian crude supply glut and the prospect of a major bank sale that could bring in significant funding strengthened the case for production cuts.
(Daily chart of Brent crude oil main contract)
As the public health incident has hit demand in China, For the past two weeks, Saudi Arabia has been urging OPEC members and their allies to meet this month to consider further production cuts. At present, OPEC+ oil-producing countries are considering cutting production by up to 2.3 million barrels per day.
Several OPEC representatives revealed that OPEC and its allies are close to giving up plans to hold an emergency meeting, although Saudi Arabia has not completely given up on its proposal. Saudi Arabia has been trying to persuade Russia to agree to deeper production cuts. Moscow has said it will announce its position in the coming days.
OPEC+’s current production reduction agreement expires at the end of March. Since OPEC and non-OPEC oil-producing countries began to coordinate actions in the oil market in 2016, Russia has played a central role in the OPEC+ alliance. OPEC and non-OPEC oil-producing countries were originally scheduled to meet in early March to discuss further actions, but the public health incident affected oil prices and some called for an earlier meeting.
Luxil’s first executive vice president Ravil Maganov told reporters after talks between Russian oil companies and Russian Energy Minister Alexander Novak, “(The government) has not yet made a decision… We discussed all (scenarios). Most (oil companies) are mostly inclined to extend production cuts for one quarter.”
Kazakhstan Energy Minister Nurlan Nogayev also said that Kazakhstan and Russia will coordinate and it is possible to reached a common position on further production cuts. “We will agree on our positions (mutually) because Kazakhstan and Russia are strategic partners.”
It is worth mentioning that the market has also sent signals suggesting that there is still some short-term oil demand. The April/May Brent crude oil futures spread narrowed to .The discount was US$0.01 per barrel, compared with a discount of US$0.33 a week ago. The narrowing of the contango (forward premium) suggests that demand for Brent crude is improving.
The three major monthly reports were mixed, and Goldman Sachs lowered its oil price forecasts
OPEC, EIA and IEA all lowered their forecasts this week Crude oil demand is expected, but the monthly report also generally reflects the decline in crude oil production. The IEA monthly report showed that OPEC crude oil production fell to a low of nearly ten years in January, which also provided some support for oil prices. However, well-known investment banks also lowered their oil price expectations. Investors Still need to be vigilant.
The International Energy Agency (IEA) said in a monthly report that OPEC crude oil production fell to the lowest level since the 2009 recession in January. January was also the first month that OPEC+ committed to further production cuts. The output of the 10 member countries participating in the agreement was 500,000 barrels per day lower than the group’s new target, and the compliance rate was 143%.
But the International Energy Agency (IEA) also pointed out in its monthly report that with the impact of public health events, global crude oil demand will decline for the first time in more than a decade this quarter. This expectation indicates that despite the latest production cuts by OPEC and its allies, the crude oil market will still face a serious oversupply. The crisis is still ongoing, and the exact impact is difficult to judge at this time.
Goldman Sachs analysts such as Damien Courvalin lowered their first-quarter Brent and WTI crude oil price forecasts by US$10 per barrel, citing a severe hit to demand following the outbreak of public health emergencies.
Goldman Sachs analysts pointed out that current oil demand may decrease by 4 million barrels per day, which will be a peak level. New oil demand in 2020 is now expected to be 600,000 barrels per day, previously expected to be 600,000 barrels per day. 1.1 million barrels.
Goldman Sachs also said in the report that Brent crude oil prices are expected to be US$53 in the first quarter, and US$57, US$60 and US$65 in subsequent quarters; WTI is currently expected to report a first-quarter price of US$53. $48.50, followed by $52.50, $55.50 and $60.50 in subsequent quarters.
Prospects for the market outlook: Investors need to continue to pay attention to news related to public health events and changes in market expectations for demand prospects; at the same time, they need to pay attention to news related to the expansion of production cuts by major oil-producing countries such as OPEC+; from market expectations From a technical perspective, there are opportunities for further rebound in oil prices in the coming week.
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