After a fierce week, seeing the trend of oil prices with a long lower shadow, I believe it still confuses many people. July 19 The performance of oil prices will leave a focus on the trend this year. The collapse performance of $6/barrel caught many investors off guard, and the performance of strong rise after turning around is equally amazing.
Oil prices have left a long lower shadow on the weekly chart, and weekly fluctuations of more than 10% are not unprecedented in the history of oil prices. It’s not uncommon, but a 10% retracement trend like this for the week is very rare. The market quickly corrected after last Monday’s plunge and recovered all the losses. This shows that the oil price trend last Monday was an emotional and irrational decline, so the market quickly corrected its mistakes. In the process, We saw that crude oil positions quickly fled 60,000 lots last Monday and Tuesday, and there was almost no significant increase or decrease in funds in the early stage of the rebound until last Friday when a substantial increase of 35,000 lots occurred. This shows that investors have changed from the initial They fled in panic and were helpless in the face of the rapid rebound. It was not until last Friday that they added positions again. Such performance allows us to see more clearly the psychological fluctuation process of investors’ risk aversion.
As the EIA weekly report showed that demand in the U.S. market is still strong, dispelling concerns about demand the previous week, global risk appetite has also heated up again, U.S. stocks have reached a new record high, and copper prices have shaken off the decline sharply. Against this background, oil prices have once again returned to a strong state.
Changes in supply and demand levels
Before the July meeting, supply The shortage situation is becoming increasingly serious. Judging from the inventory data, crude oil market premium structure and monthly difference, the market is almost unanimous in judging that OPEC+ will form a new decision to increase production at the July meeting, and the production increase is generally expected to be between 500,000 and 1 million barrels. /day, so after news came out in the market that OPEC+ planned to increase production by 400,000 barrels per day, oil prices immediately hit a new high this year. But changes also appeared later. The United Arab Emirates jumped out and demanded that it meet the requirements to increase its own production base. Otherwise, it would not agree to the decision to increase production. The OPEC+ meeting fell into a stalemate. This incident troubled the market for two weeks and brought huge unhappiness to the crude oil market. Certainty.
The crude oil market was clouded at the beginning of last week. The market’s attention shifted from the tightening supply and optimism about the consistency of oil prices to the huge uncertainty brought about by the supply side. Suddenly The market found that as oil prices rose, there was great uncertainty in the future of the supply side. OPEC+ countries were obviously very motivated to increase production, and differences arose from this. Finally, after more than half a month of repeated negotiations, on July 18 A new decision to increase production was reached, OPEC+ agreed to extend the production reduction agreement until the end of 2022, and after Saudi Arabia and the United Arab Emirates resolved the dispute that hindered the agreement, OPEC and its allies agreed to gradually add more oil supply to the market, increasing production by 40% per month. million barrels per day until all its stopped production is restored. OPEC+ agreed to a new baseline of 3.5 million barrels/day of crude oil production cuts in the United Arab Emirates, an increase of 350,000 barrels/day from the existing base, an increase of 150,000 barrels/day in Iraq and Kuwait, and an increase of 50 million barrels/day in Saudi Arabia and Russia. Starting in May 2022, OPEC+’s total baseline oil production increase will be 1.63 million barrels per day. Judging from the final production increase agreement reached by OPEC+, the increase in production is still quite restrained. The increase of 400,000 barrels per day is already the minimum increase expected by the market. However, as time goes by, the final accumulated supply will also increase by 200 by the end of this year. million barrels per day, and will increase by 3.6 million barrels per day when the existing agreement expires in April next year.
In fact, it is not just OPEC+ that is increasing production. The recovery of U.S. shale oil production has also begun to attract market attention. U.S. crude oil production has increased by 300,000 barrels per day in July. Production reached 11.4 million barrels per day, which surprised the market. Data from energy services company Baker Hughes showed that the number of active drilling rigs in the United States increased by seven last week to 387, the most since April 2020. Baker Hughes expects to add 50 drilling rigs in North America by the end of this year and believes that global crude oil growth momentum will continue until 2022, and the North American crude oil market will see additional growth in the second half of the year. Shale oil, which has had insufficient momentum to increase production due to adjustments in business philosophy for a long time in the past, is expected to increase investment again. Schlumberger, the world’s largest oil company, believes that the growth rate of crude oil activity in North America will slow down, and drilling activities may still experience unexpected growth due to spending by private exploration and production operators. In short, non-OPEC countries, including the United States, will resume crude oil output when the oil price is above $75/barrel. From the increase in production on the supply side, we can see that although the crude oil market may still be tight in the second half of this year, as the peak demand season passes, the tight supply and demand situation in the crude oil market is expected to gradually ease.
The market is not unprepared for the increase in supply-side output, but the demand forAs of the end of last year, when a new wave of epidemic broke out in the United States, the economic recovery was still continuing. So far, economists have maintained their forecasts for a historically strong recovery in the global economy, with a key factor keeping them confident that governments are unlikely to impose another anti-epidemic lockdown and that most consumers will not at all. Sex alters consumption plans. If this view changes, the outlook will become unpredictable.
Taken together, the positive factors resulting from the resolution reached at the OPEC+ meeting on July 18 will continue to play a role in the coming period. OPEC, led by Saudi Arabia, insists on being more restrained on the supply side. Increasing production capacity ensures the continuation of supply shortages in the crude oil market throughout this year, which means that it is difficult for oil prices to experience a sustained unilateral decline. If market risk appetite continues to recover, oil prices are still likely to reach $80 per barrel. But at the same time, we have also seen the power of the Delta strain. Although many people already believe that the new crown virus is becoming influenza-like, the epidemic will still plague the market from time to time before it reaches its peak. Whether demand can remain strong is what needs to be paid attention to next. factor. We need to clearly realize that the continued increase in supply in the later period is a deterministic factor, which will also continue to narrow the gap with demand, and market sentiment may cool down at any time. Therefore, while looking strongly at future oil prices, we also need to pay close attention to the impact of relevant variables on oil prices. </p
