Oil prices have been quite lively in the past week, with intraday fluctuations rising and falling rapidly almost every day. However, looking back at the weekly chart, it only closed a small positive line, and the absolute increase was not large. You must know that the past ten days can be said to have concentrated on two major events that have a profound impact on the fourth quarter and even the second half of the year. OPEC+ deepened production cuts and China and the United States reached an agreement on the text of the first phase of the economic and trade agreement.
It can be seen from the positions announced by the CFTC that the funds as of December 10 Net long positions have reached a new high in the past six months, with a significant increase of nearly 80,000 lots. This shows that funds have indeed improved their forecasts for oil prices in the future, but the process of rising oil prices has been very difficult, and there is insufficient motivation to pursue higher prices. Who is dragging down oil price performance?
Consumer side: China’s performance in the game Jordan, Naihe teammates CBA
China’s crude oil imports in November 2019 The volume was 45.74 million tons, once again hitting a record high. What does this mean? This is a crude oil import volume of 11.17 million barrels per day, which is very close to the historical import peak of the United States. China has not only surpassed the United States to become the world’s largest importer, but also continues to widen the gap with the United States, the second largest importer.
While there are obvious differences on the import side, the performance of refining and processing also saw very obvious changes in 2019. Data show that U.S. refining input fell by 370,000 barrels per day in 2019 compared with 2018. While refined oil exports did not shrink, the decline in refining input means that U.S. domestic consumption has experienced a very significant decline. Although the sales of refined oil products in China are also close to saturation, they still maintain rapid growth driven by the strong chemical industry. Data show that as of October 2019, China’s crude oil processing volume was in the second half of the year after Dalian Hengli and Zhejiang Petrochemical started operating at full capacity. Accelerating growth, a full increase of 650,000 barrels per day compared with 2018.
In addition to China and the United States, the top two crude oil consuming countries, India’s crude oil consumption, another driver of the troika of crude oil demand growth in 2018, also performed well. It is dismal. Although India has high hopes that it will take over from China and become the main driver of crude oil demand growth in the next few years. Judging from the demand growth of 300,000 barrels per day in 2018, it does have potential. However, it is a pity to enter. In 2019, India’s economic growth slowed significantly, and the growth in crude oil demand almost stagnated. Both import volume and refining input shrank by nearly 40,000 barrels per day compared with 2018.
In this way, the troika contributed 110% to the increase in crude oil market demand in 2018. In addition to China’s outstanding achievements, the United States The phenomenon of giving up one’s choice has appeared in both China and India.
This makes the efforts of OPEC led by Saudi Arabia extremely difficult. Although Saudi Arabia has the ability to successfully boost the market value of Saudi Aramco oil by 2 trillion on its domestic Riyadh exchange, OPEC+ increased production cuts by 500,000 barrels/day, and Saudi Arabia voluntarily reduced production by an additional 400,000 barrels/day, launching this policy in the past 10 years. The most aggressive production cuts have brought back the crumbling oil prices, but they have been ineffective in pushing up oil prices.
Can OPEC’s production cuts really improve the supply and demand situation?
The news of OPEC+’s production cut of 2.1 million barrels per day really shocked the market as soon as it was announced. This was indeed a move that exceeded market expectations and significantly improved the supply and demand structure. . Although the deep production cuts gave the market a bottom, it did not bring more upward momentum to the market. Because the market gradually realized that at the current moment, OPEC’s actual production is 2.55 million barrels per day lower than in December 2018, which means that the actual supply is greater than the increased OPEC+ production reduction, then in this case The crude oil market is still showing worries about excess. So even if this agreement is implemented in place, there is still a question mark whether it can truly change the supply and demand situation in the crude oil market. What’s more, regarding this production reduction cooperation, there are obvious differences and disputes among OPEC+ members, and the market is highly doubtful whether it can be implemented in place.
The weekly reports released by API and EIA in the U.S. market in the latest week both showed higher-than-expected accumulation of storage, and U.S. crude oil production fell by 100,000 barrels /day, such a cumulative library report has a clear impact on market confidence. In particular, U.S. full-caliber inventories show that the current performance in 2019 is the worst in the past three years. The full-caliber inventory is obviously accumulated. This obviously lowered investors’ expectations for the future assessment of oil prices. It can be seen that as time goes by, the inventory changes in the US market in 2019 are not impressive, and they look more severe than in 2018.
Currently, EIA, IEA, and OPEC still maintain optimistic expectations for the increase in global crude oil demand in 2020, ranging from 1.1 million barrels per day to 1.4 million barrels per day. The market remains highly skeptical of this expectation, although most people still hope that global crude oil demand will improve next year. We have previously analyzed the performance of the three carriages of crude oil demand growth in 2018. EIA’s forecast of global crude oil demand growth in 2019 It is set at 750,000 barrels per day. Under the current macroeconomic environment, it is highly likely that China’s domestic crude oil demand growth will decelerate next year. Who can step forward to stimulate crude oil demand? Judging from the current reality, there are obviously major difficulties in realizing this expectation.
The stabilization of the situation at the macro level will give the market a breathing space in the short term
In the early morning of December 14, Xinhua News Agency’s statement reporting on the first phase of the China-US economic and trade agreement mentioned that through the joint efforts of the economic and trade teams of China and the United States, the two sides have reached an agreement based on the principles of equality and mutual respect. On this basis, we have reached an agreement on the text of the first phase economic and trade agreement between China and the United States. 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. At the same time, the two sides reached an agreement that the United States will fulfill its commitments to phase out additional tariffs on Chinese products and achieve a shift from raising tariffs to lowering them.
After three months of repeated discussions, under the joint demands of China and the United States, the first phase of the Sino-US trade agreement has finally made progress. U.S. Trade Representative Lighthizer announced on Friday Speaking to reporters, the agreement will be signed in the first week of January next year. The trade friction between the two countries with the largest economies in the world is like a fight between two elephants. When you are injured, the flowers and plants around you will suffer as well. The impact of the global tariff war initiated by the United States on the economy has been very obvious. Not only are the economies of China and the United States declining significantly, but the global economy is growing at the slowest pace since the financial crisis. The OECD predicts that the world economy will grow by just 2.9% in 2019, which would be the lowest forecast since 2009. It is estimated that in 2020, the global economic growth rate will be 3%. According to the definition used by the International Monetary Fund (IMF) in the past, the global economy has entered a recession when growth fell to 3% or below.
Although the Chinese statement mentioned that the United States will fulfill its commitments to phase out additional tariffs on Chinese products and achieve a transition from increasing tariffs to reducing them. However, Trump tweeted that the original tariffs will remain unchanged, which means that this agreement only alleviates the further deterioration of the situation and does not improve the impact on the economy. The original tariffs have already had a negative impact on the economies of China and the United States. The economic growth rates of both China and the United States have been deeply affected. Especially after the continuous and substantial escalation of tariffs at the beginning of this year, the economic growth rates of China and the United States have declined rapidly. The growth rate of China’s economy dropped from 6.5% in the second quarter of 2018 to 6% in the third quarter of this year, and the U.S. economy dropped from 3.5% in the third quarter of 2018 to 1.9% in the third quarter of this year. Although reaching the first-phase agreement is not a bad thing, without fundamental reductions in tariffs, the drag on the economy from trade frictions will be difficult to improve. The ups and downs of oil prices are also a reflection of the joy and sadness before and after the announcement of the first-phase agreement.
Overall, in the past ten days, OPEC+ has reached The deep production reduction agreement, the agreement on the text of the first phase economic and trade agreement between China and the United States, and the two major bullish resonances in the macro environment and the supply side have provided a very valuable respite for oil prices. The rest depends on demand. It is obvious that major institutions have given relatively optimistic assessments on the demand side, which is the upper limit. What we are worried about is the impact that the continuous downward revision of this optimistic expectation will have on the market as time goes by. Although the market is currently very cautious and has no strong willingness to pursue higher prices, which may keep oil prices in an oscillating rhythm, there is a high probability that oil prices will maintain a strong rhythm for now and the first quarter of next year. </p
