This month, the crude oil market started with two extremes. On November 1, the price of crude oil rose sharply by 3.45%, leading to a month of strong oscillation. On November 30, the last trading day, the price of Brent crude oil fell sharply. 4.03%. After a month of hard work, most of the market has given up overnight and returned to near the starting point.
As early as November, the author repeatedly emphasized the $64-65 range in daily and weekly reports. There is a lot of pressure. It is extremely difficult for prices to break through under the current market conditions. It is not appropriate to be blindly optimistic. On the contrary, if oil prices remain strong before the OPEC+ meeting, it may not be a good thing for oil prices in the medium and long term.
Although the final progress of Sino-US trade will still have a huge impact on the global economy, in the current market environment, the macro-level back and forth surrounding the signing of the Sino-US trade agreement has changed. We have to gradually adapt, and the market expects that there is a high probability of signing, but when it will be signed, in what way, and where it will be signed are still speculations by all parties. Therefore, the impact of oil prices on the macro level such as Sino-US trade is no longer clear. play a decisive role.
When analyzing the current market price, the core focus of reference should still be on the fundamental level. Our current definition of the market is still the same as our definition a few months ago. , that is, OPEC provides a solid bottom (Brent 55 US dollars). Even if this meeting does not continue to increase production cuts but only delays the production cut time, this bottom should still be effective; if the production cuts are increased, the market mentality improves and the bottom may be will rise (it is currently unrealistic to increase production cuts), while factors such as shale oil and slowing demand will build a top for oil prices (Brent $65).
OPEC’s bottom is not unbreakable
In our assessment, an important reason why crude oil prices have not fallen below US$55 several times recently is that OPEC has provided a solid bottom for the market. This bottom is guided by the tightness of the physical market. price trend. Although we have seen that some OPEC countries have not implemented strong production reductions or even implemented production reduction plans at all, the efforts of Saudi Arabia, a powerful teammate, have made up for the shortcomings of other oil-producing countries. Coupled with some sudden bombings of oil tankers and sudden missile attacks, the involuntary withdrawal of some production capacity has further aggravated the continued tightness of the physical market and freight market. This determines that when demand remains unchanged or demand expectations remain unchanged, the space below crude oil prices is actually very limited.
But we say that OPEC’s bottom is not unbreakable. Just like when the Brent price fell from US$60 to US$50 at the end of last year, the US$10 drop was not fundamental. As a result, macro market expectations of a higher dimension than fundamentals have changed. Under the current market environment, although we believe that there will be certain compromises between China and the United States in the short term, and there is a high probability that the Sino-US trade agreement will be signed, we still cannot enter the market with full confidence and must always be wary of some messy pessimistic news on crude oil prices. Disturbance from the bottom.
Another point that needs to be focused on is the OPEC meeting next week. Saudi Arabia calls it a deepening production reduction meeting, and we call it a rhetorical production reduction meeting. We do not have high expectations for this meeting. We believe that the final result of the meeting is to continue to extend production cuts until the middle of next year. It is actually futile to ask various oil-producing countries to continue to increase production cuts, because except for OPEC , other oil-producing countries are already eyeing the supply, and they are eager to immediately invest in the market on a large scale to seize market share.
Market supply outside the United States is ready to move
Before talking about the United States, Russia’s crude oil production must be mentioned. According to market news, Russia’s average oil production from November 1 to 26 was 11.244 million barrels per day, which is above the level of the OPEC+ production reduction plan. November will also be the eighth month that Russia does not comply with the production reduction agreement. At the same time, sources pointed out that at the OPEC meeting next month, Russia will call for adjustments to the calculation method of measuring Russian oil production. Unlike other OPEC countries such as Saudi Arabia, Russia has always included condensate in its crude oil production calculations. As Russia opens new natural gas fields in the Arctic and Siberia and opens new natural gas pipelines, condensate production continues to increase.
Russia’s attitude towards production reduction has always been to focus on participation rather than on results, which has led to its failure to fulfill its production reduction quota. At next week’s OPEC meeting, Russia will seek to exclude condensate from its production reduction quota, which will provide Russia with some room to increase production in disguise. In addition, crude oil production in Libya and Brazil also has room to increase. The desire of these countries to increase production will greatly affect OPEC’s efforts to reduce production and the crude oil market supply. Of course, it will also affect the expected direction of crude oil prices.
</Editor, this is one of the reasons why prices have continued to fluctuate recently.
Looking at the long-short ratio, the same is true. Funds are less interested in doing long in the current crude oil market. The fund’s long-short ratio is relatively low, and the market is not. There are conditions for significant suppression. Therefore, when encountering embarrassing market conditions at an awkward time, crude oil prices can only oscillate and wait for clear market signals.
In summary, the current market oscillation pattern has not changed, and even the price throughout December may continue to converge around 55-65 oscillation. In the short term, we need to focus on the OPEC meeting next week. Our expectation is that the OPEC meeting will most likely not provide substantial benefits. Various oil-producing countries will focus on how to constrain those countries that do not implement the production reduction agreement as agreed. production cuts and further extension of the production reduction agreement to June. Therefore, the current market is still a pattern where OPEC provides the bottom and U.S. production and demand provide the top.
We can actually interpret the sharp drop in the market on Friday as a “death threat” before the OPEC production reduction agreement, threatening the ability of OPEC countries to act in unison on the issue of production reduction and being able to Achieve results that are acceptable or satisfactory to the market, otherwise Friday’s market will be an advance “drill”. Therefore, Friday’s sharp drop is not a bad thing for the OPEC meeting. It is a timely “reminder” to deal with short-term prices. We still have to pay attention to the difficulty of breaking through the key pressure level of 64-65 US dollars. In the future, we will still maintain a price of 60 US dollars. The central axis operates in a range of five dollars up and down. </p
