After about 10 days of sideways trading, crude oil prices have recently shown a V-shaped trend. On November 19, WTI and Brent crude oil fell sharply, down 2.87% and 2.38% respectively. On November 20 and 21, oil prices continued to rise sharply, quickly regaining lost ground and hitting recent highs. Why do oil prices fluctuate so drastically when there is not much change in supply and demand?
The macroscopic aspect has not changed much
Concerns about the decline in global economic growth have been further confirmed. In addition to the IMF previously lowering global economic growth from 3.2% to 3% in 2019, and S&P lowering the U.S. economic growth forecast for fiscal 2019 from 2.5% to 2.3%, Fitch expects global economic growth to fall to 2.3% this year. Except 2.6%. In its latest forecast, the OECD maintained its 2019 global economic growth forecast at 2.9% and lowered its 2019 U.S. economic growth forecast from 2.4% to 2.3%. In addition, there are uncertainties in Sino-US trade and Brexit, and the macro outlook has not changed much.
Adequate supply of crude oil
On the one hand, high U.S. production suppresses oil prices . In the United States, crude oil production hit a record high, reaching 12.8 million barrels per day. Although the peak period of refinery maintenance is coming to an end, the refinery’s capacity utilization rate is only 89.5%, lower than the historical level during the same period, and demand is relatively weak. Looking at import and export data, as of the week of November 15, the total export volume of U.S. crude oil and finished products was 8.411 million barrels/day, and the import volume was 8.101 million barrels/day, with net exports once again reaching 310,000 barrels/day. As U.S. shale oil production continues to set new records, the U.S. oil trade surplus in September was US$252 million, compared with a deficit of US$268 million in August, the first surplus since 1978. Therefore, sufficient supply of U.S. crude oil suppresses oil prices.
On the other hand, OPEC crude oil production returned to pre-attack levels. In October, OPEC crude oil output was 29.65 million barrels/day, an increase of 943,000 barrels/day from the previous month. Due to the attack on Saudi oil facilities in September, crude oil production fell sharply by 1.055 million barrels/day to 8.796 million barrels/day. At the end of September, Saudi crude oil production returned to the level before the attack. Therefore, Saudi crude oil production rebounded sharply by 1.094 million barrels/day in October. day to 9.89 million barrels/day, an increase of 39,000 barrels/day from August. OPEC production has resumed, U.S. production has reached a record high, and crude oil supply is sufficient.
US crude oil demand is weak, China is relatively strong and supported by freight rates
As of November 15, the capacity utilization rate of U.S. refineries was 89.5%, an increase of 1.7% from last week and a decrease of 3.2% year-on-year. The traditional autumn maintenance peak period for U.S. refineries has passed, and capacity utilization has gradually recovered. However, judging from the fact that capacity utilization is lower than the same period in history, U.S. crude oil demand is not optimistic.
Judging from the start-up of local refineries in Shandong, China, as of November 14, the operating rate of Shandong local refineries was 68.66%, a month-on-month increase of 2.01%, and a year-on-year increase of 6.84%. Among them, The normal and vacuum operating rate of the 35 main refineries was 70.09%, a month-on-month increase of 1.18% and a year-on-year increase of 6.69%. The operating rate of local refining is at a record high, and China’s crude oil demand is performing well.
In addition, as of November 22, the crude oil transportation index (BDTI) was 1296, an increase of 177 from last Friday, a sharp decrease of 662 from 1958 on October 14, and a sharp decrease of 11 from 1958 on October 14. The low of 902 on March 11 rose by 394. The crude oil transportation index fell back to the five-year average and then rose to a relatively high level. The rise in freight rates also provided certain support for SC crude oil.
OPEC+ production reduction news is endless
OPEC+ will hold a production reduction meeting from December 5th to 6th. Before that, there are endless opinions on what specific measures will be taken. We have sorted out these news below.
On October 22, four OPEC sources said that OPEC and its allies were considering further cutting crude oil supply at the December meeting due to concerns about weak demand growth prospects in 2020.
On October 28, Russia stated that it was too early to discuss deepening OPEC production cuts.
On November 6, sources said that Saudi Arabia believed it was unlikely to change its production target before March next year.
On November 6, UAE Energy Minister Mazrouei said that the implementation rate of OPEC’s production cuts is improving, and it is too early to discuss whether OPEC will deepen production cuts.
On November 7, OPEC representatives stated that OPEC+’s largest oil producers will not seek to further deepen production cuts when they meet next month, and are more likely to stick to existing oil output targets. It also encourages oil-producing countries to increase implementation of existing production reduction agreements.
On November 11, Oman’s Oil Minister stated that OPEC+ is unlikely to further reduce production, but it is possible to extend the period of the production reduction agreement. OPEC+ is expected to maintain the same level of production reduction until the end of 2020. . It is hoped that OPEC’s production reduction agreement will continue to be effective next year. OPEC+ does not need to deepen production cuts and may extend the current production reduction agreement until the end of March.
On November 20, Russian Lukoil CEO Alekperov said that OPEC+ is expected to maintain the existing production reduction agreement in December; Russian Energy Minister Novak said that it has not yet Be ready to announce our position at the OPEC+ meeting in December; Russian President Vladimir Putin said that Russia will continue to cooperate with Saudi Arabia and OPEC.
November 21, sourceSources said that OPEC+ is likely to extend the existing production reduction measures until June 2020 at the December meeting. There are currently no plans to deepen oil production reduction measures at the December meeting.
On November 21, Russian Deputy Finance Minister Kolychev said that further deepening the OPEC+ production reduction agreement will only have a negative impact on Russia.
While sorting out news related to production cuts, we found that OPEC+ members prefer to extend the production reduction agreement. Oman’s oil minister even publicly stated that OPEC+ does not need to deepen production cuts, and Russia believes that Deepening production cuts will have a negative impact on Russia, and extending the production reduction agreement at the December meeting is more in line with market expectations. Before the production reduction meeting, there will still be different voices coming out, either to deepen production cuts or to extend the production reduction agreement. Before the specific results come out, “sources” and “market news” will continue to disturb oil prices.
OPEC+ members have their own thoughts
Saudi Arabia will raise oil prices in the near future Willingness is stronger. The OPEC+ production reduction meeting will be held on December 5th and 6th. MSCI stated that the first trading day of Saudi Aramco is currently uncertain. If Saudi Aramco starts trading on or before December 12, 2019, it will be The first phase of inclusion in the MSCI stock index will be carried out no later than the closing of December 17, 2019; however, if its listing date is later than December 12, the above actions will be postponed until after January 5, 2020. From a time perspective, Saudi Arabia hopes to raise oil prices before Aramco’s first trading day.
The Saudi Aramco prospectus shows that the IPO guidance price of Saudi Aramco is 30 riyals to 32 riyals per share. Calculated based on the highest value of the published price range, Saudi Aramco’s The valuation is $1.7 trillion, lower than the $2 trillion Saudi Crown Prince wants. Separately, Saudi Arabia abandoned plans to formally market shares of its state oil company Aramco outside the country and its Gulf neighbors, the latest sign that Aramco’s IPO ambitions have been scaled back. Since Saudi Aramco’s oil facilities were attacked by Houthi armed drones in mid-September, the risk of crude oil supply increased. Fitch also lowered the ratings of Saudi Arabia and Saudi Aramco to A. The progress of Aramco’s IPO is quite difficult. In addition, the IMF also lowered Saudi Arabia’s 2019 GDP growth forecast from 1.9% to 0.2%. In the face of many obstacles, Saudi Arabia has a strong willingness to raise oil prices.
Saudi Arabia’s market share continues to decline, becoming the main force for OPEC’s production cuts. According to the production reduction agreement, Saudi Arabia’s crude oil production quota is 10.311 million barrels/day. From March to October 2019, Saudi crude oil production was less than 10 million barrels/day. The over-implementation was relatively strong, and the Saudi crude oil production quota followed. The share of global supply has declined. In addition, both OPEC members Iraq and Nigeria have failed to meet their production reduction targets. On the one hand, this has weakened the implementation of production reductions in other countries. On the other hand, what has caused Saudi Arabia even more concern is that even if Iraq and Nigeria fail to meet their production reduction targets, OPEC’s share of crude oil supply has not reached the target. Still declining, Saudi Arabia and even OPEC as a whole have a declining voice in global crude oil supply. At this OPEC production reduction meeting, since Saudi Arabia’s production continues to be below 10 million barrels per day, and its production quota is 10.311 million barrels per day, Saudi Arabia still has some room to deepen production cuts and lower its own crude oil supply target, but even if it continues If it is lowered, it will be difficult for OPEC members to act in a consistent manner.
Russian crude oil supply is above the production reduction target. From the perspective of Russian crude oil supply, Russian crude oil production remains at 11.2-11.3 million barrels per day. The latest news shows that Russia’s crude oil production in the first two weeks of November was 11.25 million barrels per day, which is higher than Russia’s crude oil production target of 11.191 million barrels per day. And Russia will say every month that it “strives to comply with the OPEC production reduction agreement,” but the actual production results have always remained high. In addition, the Russian Finance Minister said that deepening production cuts will only have a negative impact on Russia. Putin said that he will continue to cooperate with Saudi Arabia and OPEC. Only the joint efforts of crude oil producers can stabilize the market.
Under this circumstance, it is relatively likely that Russia and other countries will be required to comply with the OPEC+ production reduction agreement at the OPEC production reduction meeting in December. Although some sources said that Saudi Arabia believes that it is unlikely to change its production target before March next year, considering that Saudi Arabia still has a small amount of room, we still need to be vigilant. Pay attention to whether and how to put pressure on countries that have not met the production reduction standards before Saudi Aramco’s IPO. </p
