On Wednesday, international oil prices first declined and then rose, finally closing higher, mainly boosted by concerns about conflicts in the Middle East. As of the close of the day, the December contract of WTI crude oil futures closed at US$85.39/barrel, an increase of 1.97%; the December contract of Brent crude oil futures closed at US$90.13/barrel, an increase of 2.34%.
Data released by the U.S. Energy Information Administration (EIA) on Wednesday showed that U.S. commercial crude oil inventories increased by 1.371 million barrels in the week ended October 20, compared with expectations for an increase of 239,000 barrels, and a decrease of 4.491 million barrels from the previous value.
“Recently, oil prices have rapidly given back the gains since the escalation of the Palestinian-Israeli conflict, geopolitical tensions have eased, and oil prices have returned to fundamental logic.” Liu Shuangshuang, energy analyst at Sanli Futures, said in an interview with a reporter from Futures Daily. However, , API data released in the early morning of Wednesday showed that both crude oil and refined oil have exceeded expected destocking performance, and the current low inventory structure also limits the room for crude oil correction. In addition, the US PMI data was better than expected, causing international oil prices to rebound on Wednesday.
Li Yunxu, a crude oil analyst at SDIC Essence Futures, also said that this week’s decline in oil prices was mainly affected by the marginal easing of the Palestinian-Israeli situation brought about by the suspension of Israel’s ground offensive. In addition to the fading of geo-premium, the United States has recently eased sanctions on Venezuela, including lifting the secondary trade ban and issuing licenses authorizing related transactions involving Venezuela’s oil and gas industry within six months.
“Data show that since the beginning of this year, Venezuela’s crude oil production has increased from 661,000 barrels/day in January to 733,000 barrels/day in September. The growth rate is stable but relatively slow. Due to Venezuela’s long-term lack of investment, the ability to increase production in the short term is extremely limited. However, as the United States reduces trade restrictions on Venezuelan crude oil, European and American purchases of Venezuelan crude oil may increase, thereby reducing flows to Asia, which may have a certain impact on the regional balance of the heavy oil market,” Li Yunxu said.
Talking about the current negative factors for the crude oil market, Liu Shuangshuang said that from a macro environment perspective, high inflation in the United States continues and has not yet dropped to the Fed’s 2% target. Another interest rate hike is expected in 2023, possibly in December. Crude oil prices are under pressure amid the Federal Reserve’s interest rate hikes. In addition, the global economy faces the risk of recession. The demand for crude oil is closely related to the development of the economy. The Eurozone Comprehensive PMI unexpectedly fell to a three-year low in October, suggesting that the economy may fall into recession; the country has released intensive policy stimulus, which is still in the policy implementation stage; the impact of the strong U.S. interest rate hike on the economy Not yet manifested. Subsequent suggestions are to continue to pay attention to the risk of economic recession in the United States and Europe.
Looking forward, all interviewees believe that the biggest uncertainty facing the oil market will still be the Palestinian-Israeli conflict. Liu Shuangshuang told reporters that the Palestinian-Israeli conflict is a legacy of history. As the death toll rises, the trend of conflict expansion and continuation increases. It is necessary to pay attention to the market risk aversion that may be triggered by the expansion of the conflict in the short term and the impact on the crude oil supply side. Risk of disturbance.
Li Yunxu also said that at present, military activities between Palestine and Israel are expected to continue, and the game between the United States, Iran and other parties is still fierce. Related statements have a greater impact on oil prices and are also the biggest risk point in the later stage of the oil market.
It is worth noting that although the crude oil market faces the risk of falling in the future, there are also many favorable factors to support it. Li Yunxu believes that the bullish outlook for the oil market is mainly concentrated on the fundamentals and the actual performance is acceptable. On the one hand, the current weekly frequency micro-demand data is still relatively stable. Although the operating rate of refineries in China and the United States has declined due to seasonal maintenance, the extent is relatively limited; on the other hand, it is still in the destocking situation dominated by additional production cuts in Saudi Arabia. Cycle, API data also showed that the United States continued to destock full-scale crude oil, gasoline and diesel last week.
“Generally speaking, although the short-term support for oil prices from geopolitical premiums has weakened, it is still difficult to prove. Oil prices are still at a high level during the year. Its demand is expected to weaken and the stability of the production reduction policy next year is questionable. Oil prices are expected to continue to oscillate at a high level. “Li Yunxu said.
Liu Shuangshuang also said that the positive oil price in the fourth quarter reflects the tight balance of fundamentals, but this fundamental performance is difficult to drive oil prices up significantly. The subsequent operation logic of oil prices will be more reflected in macro factors and downstream demand.
Matt Simpson, a senior analyst at Gain Capital Group, believes that from the perspective of supply and demand, although the recent rise in oil prices has been weak, there is still a high possibility that oil prices will remain high or continue to break through at the end of the year. There are currently two main concerns in the market: first, the possibility of normalizing relations between Saudi Arabia and Israel is reduced; second, there may be downward risks in Iran’s crude oil production. Both factors will pose upside risks to oil prices. At the same time, seasonal factors may also lead to higher oil prices at the end of the year. For example, Goldman Sachs maintained its previous forecast for oil prices, believing that Brent crude oil prices will gradually rise from US$85/barrel last Friday to US$100/barrel in June 2024.
“The motivation for OPEC to reduce production is difficult to eliminate. According to Saudi Arabia’s fiscal budget, stabilizing oil prices at US$90/barrel may be the main plan. Previously, Saudi Arabia said it would extend its voluntary daily production cut plan of 1 million barrels starting from September 7. to the end of December. In addition, data also showed that U.S. oil inventories were lower than expected, and the U.S. war effort�Crude oil inventories (SPR) also fell to their lowest level in 40 years. ” said Matt Simpson.
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