In the first week of August, international oil prices fell sharply. Among them, WTI crude oil fell below the $90 mark, with a drop of more than 10%. Crude oil began to lead the decline in the commodity market, and the domestic energy and chemical sectors fell sharply across the board. More importantly, the falling oil price fell below the high volatility range formed after the Russian-Ukrainian conflict, reversing the strong pattern of crude oil, and the oil price entered a technical bear market.

 

 

 

In the past period of time, the price of refined oil products in the European and American markets has continued to fall, and the cracking gap has continued to decline from a high level. It has moved closer to the upper edge of the conventional profit range. High inflation has forced countries around the world to raise interest rates and tighten liquidity, which has brought downward pressure on the economy.

 

 Economic data from important countries in the world Continued deterioration, the risk of economic recession has inhibited the recovery of crude oil market demand, and the pessimism in the market has continued to heat up.

 

 

In addition, at the same time as the price of crude oil fell, the strong monthly difference structure, which had always reflected the tight supply in the market, also weakened rapidly and gradually became flat, which means that the bullish momentum brought by the supply side to oil prices is also gradually weakening.

 

 

 

At the August meeting, OPEC+ agreed to increase production by 100,000 barrels per day in September. At a time when market supply was tight, this was far lower than OPEC+’s production increase in recent months. Many analysts in the market believe that such a decision to increase production is important for Biden. The trip to the Middle East is a kind of humiliation, and it is difficult to satisfy the United States. 

 

The US official then made a more subtle statement. The decision to increase production is a step forward. The United States hopes to see more actions from OPEC+ and start it again. Negotiations on the Iran nuclear deal; OPEC+ emphasized that the current demand for oil is lower than expected, and OPEC+ will definitely be very cautious. Although the scale of the increase in production was lower than expected and had little impact on oil prices, it obviously did not save oil prices from the weak crisis.

 

 

Because the market is obviously more concerned about the downward pressure on the economy and the weak performance of the demand side, although the supply crisis has been hyped due to the decline in the gas supply of Beixi No. 1, and the European natural gas price has returned to a high level, it has not brought additional momentum to the oil price. 

 

As the peak season demand was falsified, the cracking profits of refined oil products in Europe and the United States showed a sharp drop from a high level, and investors' expectations became cautious.

 

 

 

From the perspective of commodities, with global central banks increasing interest rate hikes, tightening liquidity and downward pressure on the economy, the overall downward trend in commodity prices is the general trend. 

 

The logic of the trend has gradually been confirmed, but due to the influence of geographical factors and the potential European energy crisis in autumn and winter, the supply side may still give oil prices some uncertainties. Therefore, there is a high probability that oil prices will be repeated in the whole process, but the focus of oil prices will gradually increase in the second half of the year. Moving down is the general trend.

 

 

 

 

Long and short factors at the supply and demand level have driven oil prices to weaken

 

 

 

Many industry investors are still skeptical about the collapse of oil prices, because the current global oil market inventory is still at a low level despite the recovery, and the supply side is still unstable in the context of the unstable supply side and OPEC+ still insisting on controlling the return of production. 

 

After the OPEC meeting, Saudi Aramco raised the price of light sweet crude oil sold to Asia in September to a premium of $9.8 per barrel, a record high premium, which was up 50 cents from August and higher than the benchmark price in the region .

 

 

 

Saudi Arabia is the world's largest oil exporter, selling most of its crude to Asia. Saudi Aramco's monthly pricing decision is seen as a bellwether for the oil market, and other major Persian Gulf producers often follow suit, the logic behind optimistic investors that oil prices won't fall.

 

 

 

However, unlike the first half of the year, the market focused on supply concerns caused by the conflict between Russia and Ukraine. 

 

Over time, the market realized that the loss on the supply side was lower than expected. Although OPEC+ continued to lag behind the plan in increasing production, more and more data It shows that the judgment on the recovery of the demand side at the beginning of the year was overly optimistic, which has been continuously revised since May. 

 

As of July, the basic consensus reached by the market is that the recovery of crude oil demand will be reduced by more than 1 million barrels per day compared with the expectations at the beginning of the year. The EIA Energy Outlook lowered its 2022 crude oil demand forecast to 2.2 million bpd from 3.6 million bpd, a drop of 1.4 million bpd, which almost outweighs the current supply losses from sanctions against Russia.

 

 

 

On the one hand, high inflation and downward economic pressure have restricted consumption in Europe and the United States. Data show that the traditional peak consumption season starting from July, the US gasoline consumption data showed an unbelievably weak performance, which was significantly lower than the same period in previous years. 

 

This kind of data is undoubtedly not expected by the market before. In addition, after the domestic epidemic in China in April, the world's second largest crude oil consumer, the demand for crude oil plunged. Four months have passed, and China's crude oil processing volume is still far low. In the same period of previous years, it can be confirmed that China's crude oil demand this year will be significantly lower than expected at the beginning of the year.

 

 

 

The sluggish demand made it difficult for refineries to increase the operating rate, which led to a very rare weak crude oil price in August. At the same time, due to the lack of inventory pressure in China's refined oil market, refiners collectively increased the price of refined oil, but there was no support for demand. Such forced market creation by the supply side is obviously lack of continuity. With the weakening of crude oil, China's refined oil prices began to fall significantly again on Thursday and Friday.

 

 

 

The OPEC Joint Technical Committee lowered its forecast for the oil market surplus in 2022 by 200,000 barrels per day to 800,000 barrels per day. This judgment is basically consistent with the EIA’s July energy outlook. It adjusted the 2022 cumulative stockpile forecast to 740,000 barrels per day. (In the previous outlook, the surplus was only 440,000 barrels per day), and the data shows that the increased surplus is mainly concentrated in the third and fourth quarters, which may be based on the changes in supply and demand, facing the pressure of excess in the second half of the year OPEC+ In the end, he chose to increase production by 100,000 barrels per day very cautiously in September, responding to the high expectations of Europe and the United States with the smallest increase in production in history.

 

 

 

Obviously, OPEC realizes that although the crude oil market is fragile, the market cannot afford a large increase in supply. The possibility that global economic activity is not as strong is leading to lower-than-expected energy consumption, which also makes oil prices lose their upward momentum.

 

 

 

The economy, inflation, the pace of Fed tightening

 

The U.S. non-farm payrolls increased by 528,000 in a seasonally adjusted July, the largest increase since February this year, far exceeding market expectations. The employment data confirmed the strength of the U.S. labor market, after U.S. GDP posted negative growth for two consecutive quarters. , in line with the popular rule-of-thumb definition of a recession, sparking a wide-ranging debate about whether the U.S. economy has actually fallen into a downturn, and global PMI indices have seen a general decline, the China Federation of Logistics and Purchasing released on August 6. The manufacturing purchasing managers' index was 51.2%, down 1.1 percentage points from the previous month, and the month-on-month decline for two consecutive months was the lowest since July 2020. It shows that the growth rate of the global manufacturing industry continues to slow down, the momentum of global economic recovery is further weakened, and the downward pressure is increasing.

 

 

The weak economic market in the past period originally lowered expectations for a further 75 basis points of interest rate hikes in September, but this July employment report obviously changed market expectations. After the non-agricultural data was released, US interest rate futures prices showed that the Fed increased in September. 

 

There is a 62% chance of a 75 basis point interest rate versus a 40.5% chance previously. A 75 basis point hike is more likely than a 50 basis point hike. In the context of contradictory economic data, investors are obviously hesitant to evaluate the market, and the commodity market has experienced violent fluctuations.

 

 

 

In terms of economic recession and inflation control options, the market is highly concerned about the Fed's follow-up actions. In the previous two speeches on August 3, two key figures of the Fed with different positions showed their hawkish side to varying degrees. 

 

Like many of the Fed officials who spoke first on Tuesday, trying to quell the market speculation over the past few weeks that the Fed could easily turn, the July CPI data will be released next Wednesday.

 

If the fever still persists, this strong employment data will support it. , the probability of sharp interest rate hikes will greatly increase, so the strong pattern of the dollar will continue, and the commodity market will continue to be under the pressure of tightening liquidity.

 

 

 

 

Affected by the stronger-than-expected U.S. non-farm payrolls data on Friday night, the financial market fluctuated violently. Investors formed repeated games between the increase in the probability of interest rate hikes and the reduction of economic recession pressure on the market, and the risk appetite for commodities appeared. Swing, oil prices have also experienced ups and downs in this context, but the final close has fallen significantly from the high level. 

 

Although there are some voices of doubt about the poor data market on the demand side, the overall assessment of various influencing factors on the oil price is suppressed. It is still very obvious that the monthly difference structure of the crude oil market and the continuous decline in the cracking difference of refined oil in the European and American markets both show that the situation facing oil prices has undergone significant changes.

 

 

 

The continued fall in oil prices has eased inflationary pressures, and at the same time has brought respite to the economy. We can see a rebound in European and American stock markets and some commodities. This difference in strength is only a phased dislocation of rhythm. If the macro level continues to face imposition Due to interest rate pressure and economic downturn expectations, it is expected that commodity prices including crude oil will likely continue to decline.