In the past two months, against the backdrop of weakening demand expectations, international crude oil prices have fallen by more than 20%. Analysts said that the macro data of major overseas economies did not perform well. Under the expectation of economic recession, crude oil demand was under pressure, and future changes in demand will dominate the trend of oil prices. In the short term, when liquidity is tightened, the market needs to pay attention to the risk of high oil price volatility.
Recession sparks demand worries
According to Wenhua Finance and Economics data, as of the press release of the China Securities Journal on August 9, the main U.S. crude oil futures contract has fallen to around $90/barrel from a high of $123.68/barrel on June 9, with a cumulative decline of about 27%; The main Brent crude futures contract fell about 23% and is currently trading around $96 a barrel.
“The recent trend in oil prices shows that demand concerns caused by the recession have overwhelmed supply concerns, and it can be said that the premium space brought about by the Russia-Ukraine conflict has evaporated.” said Stephen Brennock, an analyst at oil broker PVM.
Behind the recent downturn in international oil prices, the market is pricing in that U.S. inflation has not peaked, leading the Fed to adopt a more aggressive path of raising interest rates.” Huang Wanzhe, a crude oil researcher at Zijin Tianfeng Futures, told a reporter from China Securities Journal.
From a macro perspective, U.S. GDP data has experienced negative growth for two consecutive quarters, and institutions believe that the economy has entered a “technical recession.” In addition, the Bank of England recently warned that the British economy will also enter a recession by the end of 2022. “At present, the atmosphere of macro expectations is weak, and the market believes that an economic recession is coming, and the expectations for the magnitude of the recession are more pessimistic.” Huang Wanzhe said.
The market is assessing the actual impact of the global economic slowdown on the energy outlook. It is expected that the high inflation in many countries will not improve this year, and the central bank’s motivation to tighten the currency will also increase until a negative feedback shock is formed on oil prices. The current oil price It is mainly a game between macro risks and fundamental reality. Rapid interest rate hikes by major central banks around the world, high inflation compressing people’s disposable income, and the impact of the epidemic on the service industry and tourism have cast a shadow on the outlook for oil demand.” Merya Futures crude oil analyst Zhang Zongjun told a reporter from China Securities Journal.
Supply-demand conflict eased
Statistics from the U.S. Energy Information Administration (EIA) show that the poor destocking speed of crude oil during the peak travel season in the United States is another driver of the accelerated decline in oil prices recently. Data show that as of the week of July 29, EIA crude oil inventories increased by 2.165 million barrels, compared with an expected decrease of 467,000 barrels; gasoline inventories decreased by 204,000 barrels, compared with an expected decrease of 1.633 million barrels.
“From the perspective of EIA’s energy outlook, the accumulation will mainly appear in the second half of the year. With the continuous growth of production from OPEC and the United States on the supply side, the reduction in oil supply is significantly smaller than expected; and under the downward pressure on the economy, crude oil demand The increment is weaker than expected. The trade-off between demand and supply has led to a substantial weakening of the role of the supply-demand gap in the crude oil market in pushing up oil prices.” Huajin Futures believes.
Judging from the recent trend of gasoline and diesel cracking spreads, the gasoline cracking spread has fallen to around US$30 per barrel, close to the level of the same period last year. Under the expectation of weaker demand, gasoline prices continued to fall, and the comprehensive processing profits of US Gulf refineries have been withdrawn in the first half of the year. gain.
“At present, with the slowdown of downstream purchases in the spot market, the disk has begun to trade expectations of weakening demand in the autumn maintenance season. In addition, the rapid increase in global construction starts in the early stage and the increase in oil market supply have greatly eased the previous contradiction between supply and demand in the oil market. The fundamentals of the oil market have emerged. There is an obvious marginal weakening signal.” Huang Wanzhe said.
“The main logic of crude oil is still changing on the demand side.” Huang Wanzhe analyzed that, from the perspective of supply, U.S. shale oil production has increased moderately, OPEC has maintained the framework of joint production increase, and Russian production has remained stable during the oil embargo exemption period. The main source of supply has no major changes for the time being. From the perspective of the long-term logic, the low supply elasticity caused by the lack of investment all year round and the geographical problems of individual countries are still the factors that continue to disturb the crude oil market.
Showing a pattern of internal strength and external weakness
It is worth mentioning that in the process of the continuous decline of crude oil prices, the trend of U.S. crude oil futures (WTI), Brent crude oil futures (Brent) and Shanghai crude oil futures (SC) began to diverge in strength and weakness. WTI performed the weakest, and SC was the weakest. The strongest performer.
“Brent crude oil futures outperformed U.S. crude oil futures in the short term, and the internal oil price was stronger than the external one.” Zhang Zongjun analyzed that follow-up attention should be paid to the impact of U.S. CPI data on the Fed’s monetary policy, as well as the further effects of crude oil inventory and other data on the trend of oil prices. guidelines. Investors can consider short-term arbitrage opportunities for the spread between Brent and WTI. When the spread is narrow, long Brent and short WTI. At the same time, you can pay attention to the arbitrage opportunities for profit recovery of domestic chemical products.
As international crude oil prices continue to fall, international investment banks have voiced their predictions about oil prices. Goldman Sachs believes that there is still a strong case for oil prices to rise, and even assuming all negative shocks occur, the crude oil market is still in a relatively obvious state of shortage.
“Even if recession fears start to drag oil prices lower, fuel substitution may still provide upside support for prices,” analysts at Bank of America said.
Looking forward to the market outlook, Huang Wanzhe reminded: “If the natural gas shortage problem in Europe continues, and the expectation of cold winter is superimposed, then the replacement of oil and gas in winter and the resonance of energy prices may become new upward driving factors for oil prices. In the short term, under the circumstance of low liquidity, the market will Need to pay attention to the risk of high price volatility.”
“In the third quarter, under the promotion of the tightening cycle of European and American monetary policies, the growth of crude oil demand gradually slowed down, and the focus of oil prices will further shift downward.” Zhang Zongjun believes that the production of major shale oil in the United States remains stable, OPEC’s remaining capacity is limited, and the overall capital of the crude oil market Due to insufficient investment and long investment and development cycle, the ability to increase production in the short term is limited. It is expected that oil prices will be supported at US$75/barrel to US$80/barrel after the center of gravity shifts downward.