Crude oil prices oscillated within a narrow range of US$63-65 last week, and the market was not too volatile. After the conflict between the United States and Iran, the market finally returned to calm. Despite the signing of the first phase of the Sino-US economic and trade agreement, the crude oil market is still tepid.
The first phase of the China-US economic and trade agreement finally came into effect last week. To put it simply, the United States agreed to suspend China will continue to impose additional tariffs and gradually cancel the tariffs that have already been imposed. China agrees to continue to purchase U.S. products. After the agreement was reached, crude oil prices did not perform significantly. The previous market expectations had fully realized the inevitability of an agreement between China and the United States. What is relatively certain is that, at least before the 2020 U.S. presidential election, there will not be many variables in Sino-U.S. trade relations.
The impact of the macro level on oil prices will gradually subside. The trend of crude oil prices in the future will more reflect changes in fundamentals and geopolitics, and fundamentals In the context of OPEC production cuts, the logic of its impact on oil prices will be clearer.
The two sides of the Iranian issue
In early January, the conflict between the United States and Iran affected everyone’s hearts. After the United States suddenly attacked Iran’s most important No. 3 figure, the possible conflict between the United States and Iran caused crude oil prices to take off instantly like a rocket. Brent crude oil also took this opportunity to strongly break through the important mark of 70 US dollars, just days before the Saudi oil facilities were destroyed. The highest point at the time of the attack was only $0.2 away.
After analyzing the Iranian issue, we found that whether oil prices continue to advance or follow the path of attacks on Saudi facilities depends entirely on Iran’s performance. If Iran can confront the United States head-on, then the price of crude oil will not only not come down, but will continue to break through toward US$75 or even US$80; if Iran expresses “give in”, then this matter will most likely be minimized. , crude oil prices will follow the path of the attack on Saudi facilities. The United States immediately announced the end of the operation after the attack, which showed that the United States was unwilling to escalate the situation. The United States used this move to suppress Iran. It was actually betting that Iran would not dare to confront the United States. Subsequently, Iran said it would counterattack and shelled US military bases in Iraq. The news pointed out that Iran had not harmed the US military. Iran’s retaliatory behavior was also characterized by netizens as “missile plowing.”
The reason why the United States dares to bet so boldly that Iran will not resist tenaciously is directly related to its repeated tests against Iran in the past two years. The United States will bomb oil tankers, drones, and attack Iran. Saudi Arabia and other accusations were all pointed at Iran. In the end, Iran did not put up a fierce resistance and was blindly weak, which led to today’s situation. At the same time as the crisis, the West also accused Iran of accidentally hitting a Ukrainian passenger plane with a missile. To our disappointment, Iran finally sent the black box of the plane to France for testing. If the West does not interpret the data according to the truth, then Iran can only No excuses. Now, the attention of the international community is no longer on the killing of Soleimani by the United States, but on Iran’s attack on a Ukrainian passenger plane. The rapid transition between offense and defense caused Iran to completely lose its moral and rational advantages.
As the Iranian issue has developed to this point, we should look at it from two aspects. On the one hand, Iran and the United States are constantly fighting; Seeking its own way out for the future while remaining unyielding is the best route for Iran in the long run. If this evolution continues, geopolitical events in the Middle East will still have an impact on oil prices, which is a relatively large disturbing factor for oil prices. On the other hand, we have recently seen some problems within Iran, and we are worried that Iran will eventually compromise on this issue. Large-scale demonstrations have broken out in Iran recently, and the voices for Iran’s Supreme Leader Ayatollah Ali Khamenei to step down have become louder and louder. Even if Khamenei refuses to compromise, will he really step down? Will a pro-Western leader take over after he steps down? Although these are still unknown, they are very likely to happen. Once this happens, Iran will return to the Iran nuclear agreement, U.S. sanctions on Iran will be gradually relaxed, and Iran’s crude oil production will enter the market in large quantities.
The macro-disturbance has come to an end
The first phase of the China-US economic and trade agreement It was finally signed. Judging from the content of the agreement, China and the United States are roughly equal. The text of the agreement includes nine chapters: Preamble, Intellectual Property Rights, Technology Transfer, Food and Agricultural Products, Financial Services, Exchange Rates and Transparency, Expansion of Trade, Bilateral Assessment and Dispute Settlement, and Final Terms. Among them, China promises to purchase U.S. products in stages. The agreement mentions that China will purchase more than 50 billion U.S. dollars of U.S. energy products, including LNG, crude oil, petrochemical products and coal. China has further expanded its financial opening up and expanded its intellectual property rights. There will be more emphasis on protection, and consensus will be reached on exchange rates and technology transfer. The United States has promised to suspend the upcoming tariff increases and gradually reduce tariffs on China. It also promised that Chinese financial institutions can freely enter the U.S. market and that the electronic payment system can be further opened to China. Overall, because China has always held an open and progressive attitude,There are no major problems with the liberalization of various fields promised, and the purchase of American agricultural products and petrochemical products is also in line with China’s current needs. But similar to the U.S. commitment to open up electronic payment and other financial fields to China, the U.S. will have more concerns.
From a deeper level, the payment and settlement system is a part of the financial hegemony of the United States. China has absolute advantages and technical reserves in the field of electronic payment. Once China fully enters the U.S. electronic payment field, China will have a potential threat to the U.S. payment and settlement system. This is an issue that will shake the foundation of U.S. financial hegemony. In addition, the United States has also confirmed that it will grant non-discriminatory treatment to Chinese credit rating service providers. Credit rating is the foundation of corporate financing. The quality of the rating will directly affect the difficulty of financing and the level of financing interest rates. Therefore, if China’s rating agencies can enter The United States will pose more or less potential threats to rating agencies such as Fitch and S&P. Overall, the United States will have greater concerns about the implementation of the agreement.
After the Sino-US trade agreement reaches phased results, the impact of the macro market on crude oil prices will be significantly weakened. The ups and downs in crude oil prices caused by the ups and downs of trade frictions in 2018 and 2019 will subside, and the crude oil market will reflect more fundamentals and geopolitical shocks.
Fundamentals short short long long
Fundamentally, the short-term market is in a stage of conflict between supply and demand. The continuous decline of the supply side coupled with the relative sluggishness of demand has caused crude oil prices to fall into a tangled market in the short term. In terms of supply, data released by OPEC’s monthly report show that OPEC crude oil production fell by 109,000 barrels per day in December last year to 29.445 million barrels per day. Except for Angola’s crude oil production, which increased significantly by 125,000 barrels per day, other regions maintained a stable or declining trend. , of which Saudi crude oil production continued to decline by 111,000 barrels per day.
On the supply side, we have seen OPEC’s determination to stabilize the market and Saudi Arabia’s control of crude oil production. However, it is still uncertain whether market supply can remain tight. First of all, the Iran issue is uncertain; secondly, it is still uncertain whether OPEC will extend the production reduction agreement after the first quarter; finally, the increase in production by non-OPEC countries has offset OPEC’s efforts to a certain extent. In the current market environment , it is easy to increase production and difficult to reduce production. OPEC monthly report raised the growth rate of non-OPEC crude oil supply in 2020 by 180,000 barrels/day to 2.35 million barrels/day. The United States, Brazil, Canada, Australia, Norway and Guyana are the main contributors to global production growth in 2020. driving force.
In addition, the issue of Libyan crude oil exports was fermented again over the weekend. Libya’s National Oil Company declared force majeure on oil exports at five ports controlled by military commander Haftar in eastern Libya on Saturday, saying the blockade by Haftar’s forces would cut the country’s oil production by more than half. Haftar’s troops have surrounded the Libyan capital Tripoli and he has so far refused to stop the offensive and reach a compromise. Libya’s National Oil Company issued a statement on Saturday saying that the obstruction in exports would result in a reduction of 800,000 barrels of daily production.
Recently, the war in Libya has seriously affected its crude oil exports. According to the Argus report, in December 2019, Libyan crude oil exports fell by about 16% to 93.6 million barrels per day, the lowest level since February 2019. Italy and China, historically Libya’s two largest buyers, saw sharp reductions in purchases and accounted for most of the drop in Libyan exports in December. Italy cut its purchases by 18% to 343,000 barrels per day. China’s purchases were 96,000 barrels per day, slightly less than one-third of November’s imports. Spain is the third largest buyer of Libyan crude oil, with its monthly purchases remaining stable at about 150,000 barrels per day. Uncertainty on the Libyan supply side has further contributed to the certainty of tightening fundamental supply.
In terms of demand, OPEC raised its crude oil demand growth rate in 2020 by 140,000 barrels per day to 1.22 million barrels per day. The IEA monthly report predicts that crude oil demand growth in 2020 is expected to be 1.2 million barrels per day, the same as before. In 2020, OECD crude oil demand increased by 275,000 barrels per day, and non-OECD crude oil demand increased by 925,000 barrels per day.
However, in the short term, demand performance is not very satisfactory, as can be seen from the inventory data in the United States. Recently released EIA data shows that gasoline inventories and refined oil inventories have increased significantly. At the same time, the US gasoline and diesel crack spread has performed relatively poorly recently. Judging from seasonal trends, U.S. gasoline is currently in the inventory-increasing stage, and starting in February, U.S. gasoline will gradually transition to the de-stocking stage.
Overall, the Iranian issue will become one of the most uncertain factors in 2020, and how it evolves will directly determine the different directions of crude oil prices. Changes in the macro market will transform from uncertain factors to deterministic factors. At least before the US presidential election, Sino-US trade relations will tend to ease, and the impact on oil prices will also be weakened.
Basically, the short-term increase in refined oil inventories will have a certain negative effect on crude oil prices. At the same time, the decline in cracking spreads has also restrained the refinery’s operations to a certain extent. Crude oil demand. But in the medium term, crude oil prices still have a strong foundation under the influence of production cuts in the first quarter, and the reduction on the supply side will promote the upward trend of oil prices. Therefore, in the short term, oil prices may still have room to fall, but it is not advisable to be overly bearish.
, how it evolves will directly determine the different directions of crude oil prices. Changes in the macro market will transform from uncertain factors to deterministic factors. At least before the US presidential election, Sino-US trade relations will tend to ease, and the impact on oil prices will also be weakened.
Basically, the short-term increase in refined oil inventories will have a certain negative effect on crude oil prices. At the same time, the decline in cracking spreads has also restrained the refinery’s operations to a certain extent. Crude oil demand. But in the medium term, crude oil prices still have a strong foundation under the influence of production cuts in the first quarter, and the reduction on the supply side will promote the upward trend of oil prices. Therefore, in the short term, oil prices may still have room to fall, but it is not advisable to be overly bearish. </p
