Crude oil trading reminder: OPEC+ may plan to increase production. The hurricane hits the US energy supply. Is it imperative for oil prices to rise?

During the Asian session on Monday (August 30), U.S. crude oil continued its rally, hitting a new high of nearly three weeks to US$69.64 per barrel; oil prices rose 2% last Friday, the biggest weekly increase in more than a year, and oil companies began to shut down the United States. Production capacity in the Gulf of Mexico, due to Hurricane Ida, moved to the New Orleans area after crossing the Gulf of Mexico, which had a significant impact on the U.S. energy supply.



During the day, we will focus on the monthly rate of the existing home contracted sales index after the seasonal adjustment in July in the United States.

Bullish factors affecting oil prices

[S&P 500 Index Sets a New High]

The U.S. stock market reached a new high, and Fed Chairman Powell’s speech convinced investors that the stimulus measures would be withdrawn in a gradual manner.

The S&P 500 and the Nasdaq 100 index rose, after Powell emphasized at the Jackson Hole seminar that it would be appropriate to start gradually reducing the scale of debt purchases before the end of the year.

Powell said that the inflation rate has made "substantial further progress" towards the Fed's target, and the labor market has also made "significant progress."

As he spoke, a closely watched inflation rate indicator remained high, indicating that despite the threat of economic recovery from the delta strain, there is still reason to normalize monetary policy.

Mike Bailey, head of research at FBB Capital Partners, said, “Powell’s speech foreshadows that the Fed will tighten monetary policy in a more moderate and market-friendly way. This relieved investors. Judging from the performance of the stock market, I think the mainstream The investor's view is that the Fed will reduce its weight in the fall and wait until the end of next year or early 2023 to raise interest rates." Increase interest rates.

Jeffery Elswick, head of fixed income at Frost Investment Advisors, expects the Fed to announce a reduction in September. He said, "I am very sure that they will officially slow down their bond purchases in October, but as long as they continue to take a dovish stance on future interest rate hikes. , Then the market will not have much reaction, at least not in the initial stage."

[Biden comes up with more optimistic economic growth and budget forecasts]

The Biden administration revised its budget forecasts for the next ten years. Because of the better economic outlook, its deficit forecast is more optimistic than it was three months ago.

According to data released last Friday, the White House currently predicts that this year's economic growth rate will be 7.1%, in May it was forecasted to be 5.2%, and the average annual growth rate for the next ten years is expected to be 2.2%, compared with the previous forecast of 2%. This mid-term assessment prepared for Congress includes actual and expected changes in federal government revenues and expenditures.

Increasing economic growth forecasts, combined with the inclusion of assumptions on the president’s economic plan that were not in the previous report, will reduce the fiscal year 2021 deficit forecast by US$555.0 billion and the deficit forecast for the next ten years by US$684 billion.

US President Biden may try to convince Congress with the latest predictions to pass a US$4.1 trillion economic plan, including the US$550 billion infrastructure bill that has been approved by the Senate, and US$3.5 trillion in long-term social security investments such as childcare and education. Budget.

[Hurricane "Ada" makes landfall in Louisiana]

Hurricane Ida made landfall in Louisiana on Sunday, and the wind intensity exceeded that of Hurricane Katrina. This devastating storm could bring massive flooding, power outages and destruction to New Orleans.

The National Hurricane Center said that at 11:55 am local time on Sunday, this Category 4 storm made landfall near the Port of Fourchon with maximum wind speeds of up to 150 miles (240 kilometers) per hour. It coincides with the 16th anniversary of Hurricane Katrina’s landfall. The hurricane that year devastated the area and killed more than 1,800 people. Hurricane Ada will pose the biggest test to date on the embankments and infrastructure rebuilt in the region after the disaster.

Hurricane Ida made landfall in southwest New Orleans and is expected to push sea levels up to 16 feet (4.9 meters) and bring 2 feet of rain. The wind is strong enough to overturn roofs, break trees and utility poles. The power outage may last for several weeks. According to Poweroutage.us, at 11:20 local time, about 80,000 homes and businesses had power outages.

[U.S. Gulf of Mexico oil and gas platforms and refining facilities stop production to prepare for Hurricane Ada]

Oil and gas exploration and exploitation companies in the U.S. Gulf of Mexico and refining and chemical plants in Louisiana have ceased production in preparation for Hurricane Ida.

According to the latest forecast from the National Hurricane Center, Hurricane Ida will make landfall near New Orleans from Sunday night to Monday morning. According to data from the Bureau of Safety and Environmental Enforcement, as of Saturday, 91% of crude oil production capacity (equivalent to approximately 1.65 million barrels per day) and 85% of natural gas production capacity were closed. The refining and chemical plants along the Mississippi River, with approximately 1.9 million barrels per day of refining and chemical capacity (equivalent to 10% of the total in the United States) have been shut down or their operating rates have been reduced.

Oil companies that shut down oil and gas production capacity include: BP, Shell, Statoil, BHP Billiton, Murphy Oil, Chevron, and Exxon Mobil.

In terms of ports, the US Coast Guard imposed traffic restrictions on the New Orleans area, and LOOP suspended delivery until the impact of the hurricane subsided.

Companies that have stopped or reduced production at refining and chemical plants include: Phillips 66, PBF, Shell, Marathon, Valero, and Exxon Mobil.

According to analysis, the landing site of Hurricane Ida is one of the “worst” locations for the oil industry. The six refineries closed in New Orleans together account for approximately the total daily refining volume of the United States. Of 9%. In addition, the operating levels of three refineries in the nearby Baton Rouge area have declined due to the impact of Hurricane Ida. The combined daily refining volume of these three refineries accounted for approximately 3.5% of the total daily refining volume in the United States.

Hurricane Ida also affected the main transportation pipeline for fuel from the Gulf Coast to the East Coast market. The two fuel pipelines closed by the Colonial Pipeline Company are 8,851 kilometers each, providing nearly half of the gasoline and diesel consumption on the east coast of the United States, and are one of the most important energy infrastructures in the United States.

Negative factors affecting oil prices

[U.S. Personal Expenditure Slowdown in July]

The slowdown in the growth of personal spending in the United States in July reflects the weakening impact of commodity spending, while the closely watched inflation indicator is still at a relatively high level.



The data released by the US Department of Commerce on Friday showed that spending on goods and services increased by 0.3%, and the data in June was revised to increase by 1.1%. The personal consumption expenditure (PCE) price index rose 0.4% month-on-month and 4.2% year-on-year. This is the index used by the Fed for its inflation target.

The Bloomberg survey shows that economists' median estimates of personal consumption expenditure and price index are both an increase of 0.4% from the previous month. Household demand adjusted for price changes is even more sluggish, indicating that household spending has slowed at the beginning of the third quarter, which is a key component of GDP. Actual personal spending fell by 0.1% in July.

The report shows that inflation-adjusted service sector spending increased by 0.6% month-on-month, while commodity spending fell by 1.6%. The growth of the service industry reflects the shift in spending on tourism and entertainment, but the rapid spread of the epidemic caused by Delta may put resistance to the industries that have been hit hardest by the epidemic.

The core PCE price index, which excludes food and energy, rose 0.3% month-on-month, and was revised up to an increase of 0.5% in June. The index rose 3.6% year-on-year, the largest increase since 1991. The increase in personal income has exceeded expectations, reflecting the impact of prepaid child tax credits and more compensation. Salaries increased by 1% month-on-month in July, the largest increase since November. Inflation-adjusted after-tax income-disposable personal income rose 0.7%, after falling for three consecutive months.

[OPEC+ expected to increase production as planned after meeting this week]

As crude oil prices rebounded after the sharp drop this month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies are expected to continue their plans to increase oil production after meeting this week.



The alliance led by Saudi Arabia and Russia is gradually resuming mass production that was suspended during the epidemic. A Bloomberg survey of traders and analysts showed that when the organization meets on September 1, it is likely to approve the next month’s Scheduled production increase plan. Several OPEC+ representatives made the same predictions in private.

Earlier this month, the crude oil market weakened, and the resurgence of the epidemic threatened the demand of China and the United States. But since then, facing a new round of the epidemic, crude oil demand has remained resilient, and oil prices have rebounded, giving OPEC and its partner countries more breathing space.

Ed Morse, Head of Commodity Research at Citigroup, said, “The uncertainty surrounding the recovery of the world economy and China’s economy has basically disappeared.” “There is ample evidence that the bottom of oil prices is temporary and overdone. If the recovery continues. , OPEC+ may stick to its production increase plan."

After the unprecedented production cut last spring, OPEC+ production has recovered about 45%. According to the plan led by Saudi Oil Minister Abdulaziz bin Salman, OPEC+ will gradually increase production by 400,000 barrels per day per month until the end of 2022.

Of the 22 traders, analysts and refiners surveyed by Bloomberg, 17 expect that the above-mentioned production increase arrangements will not change after the meeting on Wednesday, which means that production will increase as planned in October.

Energy services company Baker Hughes said the number of active drilling rigs in the United States increased by five to 410 last week, the most since April 2020. The number of active rigs increased by 25 in August, the largest increase since January and the first consecutive 12-month increase since July 2017.

[New severe cases in Japan reach the largest increase for 17 consecutive days]

According to news from Japan’s NHK TV station, Japan added 19,311 confirmed cases of new coronary pneumonia on the 29th, with a total of 14,60026 confirmed cases, 50 new deaths, and a total of 15,971 deaths. As of the 29th, there were 2070 severely ill patients in Japan, an increase of 10 from the 28th, the largest increase for 17 consecutive days.

The Minister of Health, Labour and Welfare Norihisa Tamura said that given the current high number of new confirmed cases of new coronary pneumonia and the overloading of the medical system, it will become “very difficult” to lift the state of emergency in Tokyo and other regions (the emergency period will be Expires on September 12). Tamura said yesterday in the "Sunday Debate" program of the Japanese Broadcasting Association NHK that the number of new cases in Tokyo ideally needs to be reduced to about 500 each day, which is a small part of the current number of new cases.

[The number of severely ill patients with new crown in Germany hits a new high since June]

On the 29th, the number of severely ill patients with COVID-19 in Germany exceeded 1,000 again (1008), a record high since June this year. According to data from the Robert Koch Institute, a German disease control agency, the number of newly diagnosed people and the number of new deaths in Germany that day were 8,416 and 12 respectively, with a total of 3.932 million diagnosed and 92,118 deaths. The new crown incidence index used by Germany to monitor the severity of the new crown epidemic (the cumulative number of new diagnoses per 100,000 people in seven days) continued to rebound that day, and the value rose to 74.1 from 72.1 the day before.



In general, as Hurricane Ida crossed the Gulf of Mexico at the beginning of this week, it had a major impact on US energy supply. Oil prices will rise due to the impact of the hurricane or short-term rise. Later, due to the OPEC+ meeting on Wednesday, oil prices may be mainly affected by OPEC+ in the short term. Leading the meeting.

GMT+8 8:22, US crude oil is currently quoted at US$69.15/barrel.