On October 7, international crude oil prices fell sharply again and approached the low reached in August, with a strong downward trend. From the perspective of supply and demand fundamentals, the global crude oil demand gap in the third quarter was only 1.45 million barrels per day. This occurred after OPEC+ cut production, indicating that global demand is actually still weak.
Looking forward to the fourth quarter, the global crude oil market may return to a surplus pattern, and oil prices may fall to the range of 65-70 US dollars per barrel. On the one hand, OPEC+ production cuts represented by Saudi Arabia have reached their limit. The Palestinian-Israeli conflict will not trigger Middle East oil-producing countries to get involved in war. The growth of U.S. crude oil production and the possible return of Venezuelan crude oil to the market leave little room for further compression of supply. On the other hand, the economic slowdown in Europe and the United States is coupled with the arrival of my country’s seasonal consumption off-season, and demand is likely to slow down or decline.
Supply contraction reaches limit
Although OPEC announced that it would extend production cuts until the end of 2023, OPEC’s actual crude oil production is rising. Data released by OPEC’s monthly report show that OPEC crude oil production fell by 1.941 million barrels per day in September compared with the same period last year and increased by 273,000 barrels per day compared with August. Except for Venezuela, other countries are increasing production month-on-month.
For Saudi Arabia, if production is reduced for a long time, its market share will inevitably be taken away by the United States, Canada and other countries. After the shale gas revolution, the United States and Canada have become less dependent on oil imports and have become net exporters. Therefore, we see that Saudi crude oil production increased by 82,000 barrels per day in September compared with August.
The possibility of Venezuelan crude oil returning to the international market is high. Venezuela is the country with the largest oil reserves in the world, and its oil product is high-sulfur crude oil. For the United States, there is no technical problem in processing high-sulfur crude oil. In the long term, as the United States gradually relaxes its sanctions on Venezuela, coupled with the compromise of Venezuela’s domestic political forces, the United States is likely to transform it into a second Canada. As a result, Venezuela’s oil resources can be developed, further promoting the global crude oil market. A balanced pattern is formed. Data shows that Venezuela’s peak oil production reached 3 million barrels per day.
For Russia, sanctions imposed by Western countries will not be relaxed in the short term, but they have not completely disappeared from the international market, but have flowed to Asian countries such as China and India. In September, Russian crude oil production was 9.48 million barrels/day, an increase of 10,000 barrels/day from the previous month; Russian crude oil exports were 4.9 million barrels/day, an increase of 200,000 barrels/day from the previous month, and refined oil exports were 2.6 million barrels/day. , an increase of 200,000 barrels per day month-on-month.
In the United States, after the shale gas revolution, the United States changed from a country that was highly dependent on oil and gas imports to an oil-independent country. Coupled with Canadian oil supplies, North America’s rebound
It has become an important oil and gas export region, which has changed the original oil supply and demand pattern. Since mid-October, U.S. crude oil production has risen to 13.2 million barrels per day, setting a new record.
The picture shows U.S. crude oil exports to the Asia-Pacific region (as of September 2023)
The three major institutions all estimate global crude oil production to increase in 2023 and 2024. In the October supply and demand report, the IEA, EIA, and OPEC forecast global crude oil supply in 2023 at 101.6772 million barrels/day, 101.2608 million barrels/day, and 101.1968 million barrels/day, respectively, an increase of 1.582 million barrels/day and 101.1968 million barrels/day compared with the crude oil supply in 2022. 1.3165 million barrels per day and 1.1258 million barrels per day, respectively increased by 91,300 barrels per day, 81,600 barrels per day and 254,300 barrels per day compared to the forecast values in September 2023. The crude oil supply forecasts by IEA, EIA, and OPEC in 2024 are 103.3024 million barrels/day, 102.1912 million barrels/day, and 102.7213 million barrels/day respectively, which are an increase of 1.6252 million barrels/day, 930,400 barrels/day, and 102.7213 million barrels/day respectively compared with the crude oil supply in 2023. 1.5245 million barrels per day.
The next OPEC+ meeting will be held on the weekend of the last week of this month. It is still unknown whether Russia and Saudi Arabia will decide to extend their additional voluntary production cuts until 2024. Judging from the market share and the right to speak in crude oil, Saudi Arabia is not willing to continue to bear it. The cost of maintaining high oil prices is shrinking its own market share.
The picture shows the CME Group’s OPEC Observation Tool’s prediction of the outcome of the OPEC meeting on November 26
Demand growth will slow further
From the perspective of global economic growth prospects, there is a high probability that the economic growth of developed countries such as Europe, the United States, and Japan will slow down in the fourth quarter, which means that the growth rate of demand for crude oil in Western countries will also slow down. The market’s concerns about the global economic slowdown exceeded concerns about the escalation of conflicts in the Middle East, and international crude oil fell sharply. The EIA has slightly lowered its forecast for Brent crude oil prices in 2023 to less than US$84/barrel, and lowered its price forecast for next year to about US$93/barrel, compared with the previous expectation of close to US$95/barrel.
In the United States, the job market continues to cool, which means that the resilient U.S. household consumption is likely to see stagnant or even negative growth in the fourth quarter. Consumer confidence at the University of Michigan in the United States unexpectedly fell sharply in October, the largest single-month decline since June 2022.
In Europe, the Eurozone’s GDP shrank in the third quarter, down 0.1% quarter-on-quarter from the initial value. Leading Indicators – Euro AreaPMI in October fell to its lowest level in nearly three years, and German industrial production fell by 1.4% month-on-month in September, far exceeding the expected decline of 0.1%, indicating that the European locomotive economy is facing the risk of stalling.
The arrival of China’s seasonal consumption off-season means that demand for crude oil imports weakens in the fourth quarter. China’s crude oil imports in October were 48.97 million tons, an increase of 7% month-on-month and 13.5% year-on-year. The growth rate dropped slightly by 0.2 percentage points from September. However, the weakening demand for crude oil in November has been verified by data. The refining losses of the main refinery have deepened, and the operating load of the refinery has dropped for five consecutive weeks. As of November 2, the processing profit of the main refinery dropped to -162.87 yuan/ tons, local refinery processing profits fell from 1,000 yuan/ton to 350 yuan/ton, and domestic crude oil processing demand is falling.
The picture shows the supply and demand gap in the global crude oil market
To sum up, as global crude oil supply shrinks to its limit and demand is weakening, global crude oil inventories are rising again. This means that unless demand rebounds more than expected in the future, the pressure of crude oil destocking will cause crude oil prices to continue to drop. In addition, investment demand has also subsided. In the week of October 31, the net long position of NYMEX WTI crude oil held by speculators decreased by 60,795 contracts to 153,474 contracts, a new low in the last 16 weeks. Investors can use CME Group’s WTI crude oil weekly options to manage risks. Since the WTI crude oil weekly options expiring on Monday, Wednesday and Friday can build hedging portfolios of different periods, for the WTI crude oil Back structure, they can be based on risk neutrality. Build a double-buy strategy portfolio. Since its launch on July 31, the Monday and Wednesday WTI weekly options have traded more than 250,000 contracts.
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