The crude oil market fell sharply again last Friday, easily falling below the OPEC expected management price of $90/barrel. Oil prices did not stop there, but went straight to the lows in September this year. This position was the “freezing point” of oil prices throughout the year. The crude oil market once again experienced a collapse of confidence. At this moment, OPEC’s efforts to reduce production were completely undermined by pessimistic expectations.
Crude oil has become the weakest commodity in the commodity market for the second consecutive week. my country’s SC crude oil futures fell for five consecutive trading days last week. If the night trading on the previous Friday is included, the weekly decline exceeded 10%, the largest weekly decline since June. . International oil prices also fell sharply, with WTI crude oil falling by nearly 10% and Brent crude oil falling by more than 8%.
After entering November, the weak performance of crude oil surprised many investors. This is because there is a huge difference between reality and expectations, which in turn triggers speculative bulls to abandon the market.
In the past period of time, the market was highly optimistic that oil prices would remain strong at the end of the year against the backdrop of tightening supply, and fund net long positions had also accumulated to a five-month high. However, as time goes by, judging from the changes in factors affecting oil prices, recent supply and demand changes have Lack of support has led to lower market expectations. Position reports as of last Tuesday showed that Brent and WTI crude oil investors had significantly reduced their net long positions in crude oil by nearly 80,000 lots. It can be predicted that the sharp decline in the following three days further accelerated the pace of speculative bulls leaving the market.
The monthly reports of the three major institutions released in November all had a relatively pessimistic outlook on the demand side of the crude oil market, which directly led to the decline of bullish enthusiasm in the crude oil market.
In addition, after the OPEC+ 2 million barrels/day production reduction plan entered the implementation stage in November, the supply-side tension that the market had originally expected to be higher did not appear. Several geopolitical events occurred during the period, but they all cooled down quickly. The difference in expectations disappointed Sentiment permeated the market, causing investors’ confidence to continue to lose, and the center of gravity of oil prices to continue to decline. The weakening of oil prices is obvious. The discount in the physical market has weakened, the monthly spread structure of oil prices has weakened, and the crack gap of refined oil products in Europe and the United States has not improved, all of which indicate that investor expectations have turned pessimistic at this stage.
In fact, the current supply and demand level of the crude oil market has not deteriorated significantly, but the supply tightness generally expected by the market has not appeared. Instead, weak demand has dominated the trend. As the risk appetite of the commodity market has cooled, it has further contributed to the downward shift of the center of gravity of oil prices. The sharp drop in oil prices in the first half of last Friday also helped to vent the recent pessimism. In the second half of the night, oil prices gradually stabilized from lows and recovered most of the day’s losses. Considering that although the supply and demand levels are lower than expected, they have not deteriorated significantly. After the energy of the rapid decline is released, there is a high probability that oil prices will stop falling.
The latest EIA weekly data shows that oil market inventories remain at multi-year lows. The tightening efforts on the supply side represented by OPEC are obvious. OPEC, led by Saudi Arabia, has been trying to stabilize the crude oil market and keep oil prices at a more comfortable position. Tracking data from three-party agencies show that crude oil production by Saudi Arabia, the leader of the OPEC+ organization, decreased by approximately 430,000 barrels per day compared with last month, a decrease of approximately 6%. Data from another agency shows that Saudi Arabia’s crude oil production has been reduced by as much as 676,000 barrels per day. In addition, Daniel Gerber, CEO of oil tanker shipping company Petro-Logistics SA, also said that the crude oil exports of the 13 OPEC+ member countries “dropped very sharply in the first half of November, with a daily decline of more than 1 million barrels. “. The company, which has monitored tanker traffic for decades, said crude oil exports from members of the organization may rebound in the second half of this month, but the average monthly decrease will be about 1 million barrels per day, roughly equivalent to the organization’s commitment. The total production reduction means that OPEC is working hard to reduce production to maintain the stability of the crude oil market.
It can be said that OPEC’s decision to reduce production injected “stimulant” into the market for a time, and it was put into practical action. Saudi Arabia, Iraq and other countries have implemented production reduction plans. However, as time goes by, the effect of production reduction has been continuously affected by the sluggish demand side. offset. According to market news, refineries in Asian countries have requested to reduce the supply of Saudi crude oil in December and have also slowed down their purchases of Russian crude oil. Market sentiment has made matters worse. Weak demand this week has made investors worried, triggering a sharp fall in oil prices.
We have observed that the current refinery operations and crude oil processing volumes in China and the United States are at high or rising levels during the year. There is still a basic guarantee for crude oil demand, but concerns about the global oil product market have cooled down significantly recently. In November, the three major institutions including OPEC, the International Energy Agency, and the EIA all made cautious judgments on the demand side. OPEC lowered its crude oil demand forecast for 2022, and the EIA significantly lowered its crude oil demand for 2023, reducing global crude oil demand in 2023 to The growth rate forecast was lowered by 320,000 barrels per day to 1.16 million barrels per day. This sharp reduction in demand expectations for next year surprised the market and had a significant effect on cooling oil prices.
Overall, the crude oil market is currently at a stage where the supply side actively manages expectations to maintain stability in the crude oil market, while the weak demand side makes the market less confident. In this case, if there are no positive factors that exceed expectations, it will be difficult for the supply and demand levels to Bring upward momentum to oil prices. Two geopolitical events occurred last week that may have affected supply, but both were short-lived intraday pulses and did not effectively boost market sentiment. This means that unless there are strong enough positive changes in supply and demand, it will be difficult for oil prices to A return to October’s optimism.
The overall sentiment in the commodity market has declined in the past week, and core commodity assets such as crude oil and copper have all declined. This shows that investors are still relatively cautious in their assessment of commodities. The much-watched U.S. CPI data shows that inflationary pressure has begun to cool down, and behind the fall in inflation data is the decline in commodity prices. From this perspective, a decline in commodity prices in the future is a relatively certain high probability event. Judging from the current absolute price assessment, oil prices are still at a high level and there is room for adjustment. If the downward pressure on the global economy is not alleviated in the later period, the suppression of the oil market will continue. However, we must also objectively see that global oil market inventories are still at low levels and the supply and demand structure is not stable. In this case, oil prices may be affected by unexpected factors at any time and maintain a state of substantial fluctuations. Therefore, although expectations for continued strength in oil prices have subsided, significant fluctuations will remain the norm. Judging from the rhythm of oil price fluctuations, after continued sharp declines, oil prices may usher in a window for repair and adjustment next week.
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