U.S. oil fell sharply after rising higher last week. The situation between the United States and Iran remained the focus of speculation in the crude oil market last week. The rise in oil prices was mainly due to the escalation of tensions between the United States and Iran, while the decline was mainly due to the cooling of tensions between the United States and Iran. However, on the other hand, there are many factors that contributed to the decline in oil prices last week, such as the sharp increase in U.S. crude oil inventories, the situation between the United States and Iran did not affect the supply of crude oil in the Middle East, and the outlook for global crude oil demand remains weak.
From a medium-term perspective, the supply and demand imbalance in the crude oil market continues, which may The outlook for oil prices will bring heavy pressure. Next, let us give you a detailed explanation of the key events that affected the crude oil market last week, in order to provide some guidance for predicting future oil price trends.
The situation between the United States and Iran has taken a turn for the worse, and oil prices fell sharply after rising last week
The situation between the United States and Iran was the main factor affecting oil prices last week. At the beginning of last week, the situation in the Middle East heated up, and oil prices briefly rose. However, since then, there have been no signs of further conflict between the United States and Iran, causing oil prices to fall sharply.
Recently, the United States and Iran have been in a cycle of “retaliation” against each other. The United States killed Iranian senior military commander Soleimani in Iraq, and Iranian missiles attacked US military bases in Iraq. Trump demonstrated to Iran through his speech…
In the early morning of January 3, local time, Iraq A U.S. missile attack near Baghdad International Airport. Soleimani, leader of Iran’s Islamic Revolutionary Guard Corps, and others were killed in an airstrike.
Since then, two US military bases in Iraq have been attacked. According to the Los Angeles Times, an anonymous defense official said that Iran launched at least 15 missiles at the US military base, 11 of which hit the target. Iran’s Islamic Revolutionary Guard Corps said the attack was retaliation for the killing of Soleimani.
Soleimani is considered the representative of Iran’s power in the Middle East and is the country’s most important general in carrying out military missions in the Middle East. After Soleimani’s death, Iran suspended its implementation of the Iran nuclear agreement and raised a red flag symbolizing revenge. His successor Carney warned, “Wait to see the corpses of American soldiers scattered across the Middle East.”
Iran’s Supreme Leader Ayatollah Ali Khamenei said that Iran’s air strikes on US military bases were “a slap in the face of the United States.” Iranian Foreign Minister Javad Zarif said on social media that Iran’s move was a reasonable “self-defense measure” and was not seeking to escalate the situation or start a war.
On the morning of the 8th, Trump delivered a speech at the White House. In his opening remarks, he directly stated, “As long as I am the president of the United States, Iran will never be allowed to possess nuclear weapons.” He also said that no Americans were harmed in the attack, and the US military base suffered only minimal damage. Trump said that Iran “seems to have restrained itself”, which is “a good thing for all parties involved.”
At the end of his speech, Trump shouted to Iran that the United States was “ready to accept peace.” Trump’s speech lasted about 10 minutes.
British Sky News analyzed that Trump did not announce that he would take military action in his speech, but claimed that “the economic and military strength of the United States is the best deterrent.”
American cable TV also believed that Trump’s speech showed that he chose to respond through sanctions, and “the military escalation seems to have ended.” However, Trump still needs to deal with longer-term issues.
U.S.-Iran tensions have not affected Middle East crude oil production; This also explains the drop in oil prices
Although tensions between the United States and Iran have intensified, there seems to be no sign of interruption in crude oil production in the Middle East. OPEC and one of its largest members sought on Wednesday to calm market concerns about Middle East oil supplies. Therefore, oil prices fell sharply after Iran supplied supplies to US military bases.
OPEC Secretary-General Barkindo said on Wednesday that Iraq’s oil facilities are safe and Iraq’s oil production continues.
Barkindo said on the sidelines of a conference in Abu Dhabi, “It is a relief that these facilities in Iraq continue to be safe and sound, and production is continuing efficiently, despite the current tense situation. He is still optimistic that Iraq will implement 100% of the OPEC production reduction agreement in a timely manner.”
UAE Energy Minister Mazrouei said on Wednesday that after Iran attacked the US military base in Iraq, it passed through Hormuz There was no immediate risk to oil shipments in the strait. The Strait of Hormuz is an important gateway for the oil industry.
Mazrouei said on the sidelines of a meeting in Abu Dhabi that what happened should not be exaggerated and that the current situation is not a war. Mazrouei added that the Organization of the Petroleum Exporting Countries (OPEC) was not discussing any measures at the moment, but if there was a shortage of oil supplies, OPEC would evaluate the situation.
Mazrui said “geopolitical influence is back” as a factor affecting oil prices after playing a smaller role over the past two to three years. However, the UAE is not worried about the supply or demand for crude oil. The outbreak of war in the Gulf is “the last thing we want to see.”
Mazrui said, “There were two OPEC members in the Middle East There was a war and during that war, oil prices were not high and we continued to supply oil,” he said.Refers to the conflict between Iran and Iraq in the 1980s.
Although the flow of oil from the Middle East remains unimpeded for now, the risk of disruption is affecting the crude oil market. Most exports from the Gulf, including those from Saudi Arabia, Iran and Iraq, pass through the Strait of Hormuz. Iran has repeatedly threatened to block the strait in the event of war.
The extreme situation of the US-Iran conflict, which is blocked in the Strait of Hormuz, has not yet occurred
An analyst from S&P Global said that the oil market The biggest black swan event in the world was the destruction of the Strait of Hormuz, the most critical chokepoint in the Middle East.
Dave Ernsberger, the company’s global head of commodity pricing, said on Thursday, “Any disruption to ship transportation in the Strait of Hormuz will have a huge impact on the market.”
The Strait of Hormuz is an important conduit used by producers to transport oil from the Middle East around the world. It is 21 miles wide at its narrowest point, and about 21 million barrels of oil per day were transported through the waterway in 2018, according to the U.S. Energy Information Administration.
Iran has repeatedly threatened to block it in the event of war. Once navigation in the Strait of Hormuz is blocked, Iraq’s export routes will be almost completely interrupted, and the risks faced by Kuwait and Qatar will be second only to Iraq.
If the escalation of the conflict between the United States and Iran blocks navigation in the Strait of Hormuz, supply disruptions will cause many countries to be forced to reduce crude oil imports from Iraq, Kuwait and the United Arab Emirates, and have to turn their attention to Saudi Arabia, Russia and the United States. wait. Supply risks will send international oil prices soaring.
U.S. crude oil inventories unexpectedly increased, and the sharp increase in refined oil inventories put pressure on oil prices
Data released by the U.S. Energy Agency EIA last week showed that the United States on January 3 EIA crude oil inventories unexpectedly increased during the week, while refined oil inventories increased significantly, which put heavy pressure on oil prices. At the same time, the substantial increase in refined oil inventories also indicated that the outlook for crude oil demand was weak.
Data show that the EIA crude oil inventory change in the United States in the week ending January 3 actually increased by 1.164 million barrels, and was expected to decrease by 3.185 million barrels. The previous value decreased by 11.463 million barrels.
In addition, EIA gasoline inventories in the United States actually increased by 9.137 million barrels in the week ending January 3, compared with an expected increase of 2.701 million barrels, and the previous increase of 3.212 million barrels; EIA refining in the United States in the week ending January 3 Oil inventories actually increased by 5.33 million barrels, compared with an expected increase of 3.957 million barrels, and the previous increase of 8.776 million barrels.
The EIA report showed that U.S. crude oil exports decreased by 1.398 million barrels per day last week to 3.064 million barrels per day. U.S. domestic crude oil production remained at 12.9 million barrels per day last week. The four-week average supply of U.S. crude oil products was 20.596 million barrels per day, an increase of 0.6% from the same period last year.
The EIA report showed that commercial crude oil excluding strategic reserves imported 6.73 million barrels per day last week, an increase of 379,000 barrels per day from the previous week. Commercial crude oil inventories excluding strategic reserves increased by 1.2 million barrels to 431 million barrels, an increase of 0.3%.
In addition, data last week also showed that API crude oil inventories decreased more than expected, but refined oil inventories also increased significantly. Data released by the American Petroleum Institute (API) showed that API crude oil inventories in the United States fell by 5.95 million barrels in the week ending January 3, compared with an expected decrease of 4.064 million barrels; gasoline inventories increased by 6.7 million barrels; and refined oil inventories increased by 6.4 million barrels.
The imbalance between global crude oil supply and demand is still putting pressure on oil prices
In early December 2019, OPEC+ once again reached an agreement to deepen production cuts. This time the agreement decided to extend the production cuts. By the first quarter of 2020, an additional 500,000 barrels/day of production cuts will be added to the 1.2 million barrels/day. At the same time, Saudi Arabia will continue to reduce production by an additional 400,000 barrels/day. The total scale will be in October 2018. based on a decrease of 2.1 million barrels per day.
To reach the largest production reduction agreement in ten years, OPEC+, led by Saudi Arabia, has made great efforts and determination. However, in fact, even if OPEC reduces production, the global crude oil market supply and demand It is also difficult to improve the imbalance, because many non-OPEC oil producers, represented by the United States, will significantly increase production. As OPEC gradually ends its production cuts, the imbalance between supply and demand may deepen.
According to EIA’s forecast, U.S. crude oil production will increase by 520,000 barrels per day in 2020, which is higher than OPEC’s production reduction. The OPEC report predicts that U.S. crude oil production is expected to increase by nearly 1 million barrels per day in 2020, which is much higher than OPEC’s production reduction.
Various data predictions are based on the premise that all OPEC members can implement the production reduction plan well. Saudi Arabia’s current production reduction is already very high, and there is insufficient motivation to continue to significantly reduce production. Iraq has not implemented it for most of 2019. The production reduction agreement not only does not reduce production, but also increases production. Whether the production reduction agreement can be strictly implemented in 2020 is still a variable.
In addition, Russia did not implement the production reduction agreement well in 2019. In the last production reduction meeting, Russia tried its best to exclude the production of condensate in the production reduction meeting in order to increase production. And in the press conference after the meeting, the Russian Energy Minister still insisted on excluding condensate production from production calculations. Therefore, whether Russia’s crude oil production can be reduced below the limit is full of uncertainty.
For OPEC, Iran, Venezuela and Libya remain the main variables in OPEC’s crude oil supply; the increase in supply from these oil-producing countries will “force OPEC and its OPEC+ partners to take some difficult actions.”
Last week, the World Bank once again lowered its global growth forecast for 2020, casting a shadow on the demand outlook for the crude oil market. In its latest “Global Economic Prospects Report”, the World Bank lowered its global economic growth forecast for 2020 to 2.5% from 2.7% previously. However, the overall economy is still expected to rebound moderately in 2020. The World Bank lowered its growth forecast for 2021 to 2.6%, saying the outlook is fragile.
Therefore, overall, the supply and demand situation in the crude oil market in 2020 is still oversupply, and the outlook for oil prices is not optimistic.
�The global economic growth forecast for 2020 has been lowered to 2.5% from 2.7% previously, but the overall economy is still expected to rebound moderately in 2020. The World Bank lowered its growth forecast for 2021 to 2.6%, saying the outlook is fragile.
Therefore, overall, the supply and demand situation in the crude oil market in 2020 is still oversupply, and the outlook for oil prices is not optimistic. </p
