Boosted by optimism about the international trade situation and OPEC+’s deepening of production cuts, crude oil prices closed above $60 per barrel on Friday, the first time since a missile attack on Saudi Arabia caused a record surge in oil prices. However, it should be noted that U.S. oil production growth is expected to increase to 20.9 million barrels per day next year, which may lead to a sharp increase in global inventories, which will put pressure on oil prices.
International oil prices weakened slightly, but overall still maintained a three-month high. Boosted by optimism about the international trade situation and OPEC+’s deepening of production cuts, crude oil prices closed above $60 per barrel on Friday, the first time since a missile attack on Saudi Arabia caused a record surge in oil prices.
However, it should be noted that U.S. oil production growth is expected to increase to 20.9 million barrels per day next year. In addition, the International Energy Agency believes that U.S. shale gas is squeezing OPEC’s influence. Data released by U.S. oil services company Baker Hughes showed that the number of active oil drilling rigs in the U.S. increased by four to 667 in the week ended December 13, growing again after seven consecutive weeks of decline.
The international trade situation is optimistic and the outlook for crude oil demand is improving
The Tariff Commission of the State Council issued an announcement on temporarily suspending the implementation of additional tariffs on some imported goods originating in the United States. In order to implement the results of recent consultations between China and the United States on economic and trade issues, in accordance with the Customs Law of the People’s Republic of China, the Foreign Trade Law of the People’s Republic of China, the Import and Export Tariff Regulations of the People’s Republic of China and other laws and regulations and basic principles of international law, the Tariff Commission of the State Council It was decided that the 10% and 5% tariffs on some imported goods originating in the United States that were originally planned to be levied at 12:01 on December 15 will not be levied for the time being, and the suspension will continue on automobiles and parts originating in the United States. Increase tariffs.
In addition to the above measures, other tariff measures against the United States and Canada will continue to be implemented in accordance with regulations, and the work of excluding goods subject to tariffs on the United States and Canada will continue. China hopes to work with the United States on the basis of equality and mutual respect to properly resolve each other’s core concerns and promote the stable development of China-U.S. economic and trade relations.
Daniel Ghali, commodities strategist at TD Securities, said, “The market has already reflected this result to some extent, hoping that the international trade agreement will bring more demand.”
Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said, “Risk appetite among financial investors is likely to remain high now due to the agreement between China and the United States. However, at least in the first half of the year, the oil market faces a huge oversupply. and the risk of a substantial increase in inventories.”
OPEC production cuts will intensify the tension in the oil spot market
OPEC further cuts production, Saudi Arabia’s determination to keep Brent crude oil prices above $60 will make the already tight spot crude oil market even more tense. This will keep Brent and Dubai crude in backwardation throughout 2020.
Iraq’s increased compliance with the production reduction agreement will mean a decline in Basra’s heavy oil exports, exacerbating the difficulties facing large refineries due to “continued reductions in exports from Venezuela and Iran.”
U.S. oil rig count rises again after falling for seven consecutive weeks
U.S. shale oil drilling activity is slowing as drillers struggle to make a profit at current price levels and face capital constraints. The break-even point for shale oil producers hovers around $60 per barrel.
Despite this, the United States will once again lead the world in oil production growth, rising from 1.3 million barrels per day to 20.9 million barrels next year. In addition, the International Energy Agency believes that U.S. shale gas is squeezing OPEC’s influence.
Data released by U.S. oil services company Baker Hughes showed that the number of active oil rigs in the U.S. increased by 4 to 667 in the week ended December 13, growing again after seven consecutive weeks of decline. However, in the past 16 weeks, the number of active oil rigs in the United States has decreased by 107, while it has decreased by 206 in the past year.
Estimations of OPEC crude oil demand by three major institutions
Three recent reports Large institutions have successively released their December reports. From the balance sheet, the demand for OPEC crude oil from EIA, OPEC and IEA is 2920, 2910 and 28.5 million barrels per day respectively. If OPEC can reduce production to 29 million barrels per day, then if According to the estimates of the first two institutions, supply and demand will be roughly balanced in the first quarter of next year.
However, the IEA is relatively pessimistic. Even if OPEC production cuts are in place, the market will have a surplus of 700,000 barrels per day. However, in this monthly report, the IEA revised the market’s expectations for OPEC crude oil demand in the first quarter of next year. 28.3 million barrels per day was revised upward to 29.3 million barrels per day.
At present, institutions have generally lowered their forecasts for the growth of U.S. oil production next year. The EIA has lowered its forecasts for U.S. oil production by 180,000 barrels per day and the IEA by 110,000 barrels per day. After the U.S. production forecast was revised downwards, the market has OPEC crude oil demand has increased.
A sharp increase in global inventories? Oil prices are expected to remain between US$50 and US$70 per barrel in the future
Looking to the future, the International Energy Agency (IEA) released a monthly report last Thursday (December 12) stating that future oil prices will still be under pressure. Although OPEC and its partners intensify their efforts to reduce production, the IEA predicts that global inventories are expected to increase sharply.
Even if OPEC+ strictly implements the new production reduction agreement,�And political difficulties in countries such as Iran, Libya and Venezuela continue to drag down exports from these countries, and global market supply may only be 530,000 barrels per day less than November production.
WTI crude oil will remain between US$50-70/barrel in 2020, and Brent crude oil price will remain between US$55-75/barrel. Oil prices were mainly supported by a sharp decline in Venezuelan production, OPEC production cuts and sanctions on Iran. In the United States, production in the United States is expected to increase as new pipelines come into use.
(Daily Chart of U.S. Oil)
In terms of data, we still need to pay attention to the U.S. oil prices this Wednesday Changes in API/EIA crude oil inventories, and further attention to the latest news such as Trump’s impeachment case and international trade, are expected to affect the outlook for crude oil demand, thereby affecting the trend of oil prices. </p
