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Market News Oil Market Weekly Review: Oil prices have basically remained volatile this week, and many factors have limited oil prices
Oil Market Weekly Review: Oil prices have basically remained volatile this week, and many factors have limited oil prices
On May 20, U.S. oil prices basically maintained volatile trading. Although the conflict between Russia and Ukraine has always provided support for oil prices, many factors that have emerged recently have begun to limit the rise in oil prices. Analysis pointed out that oil prices may start a wave of corrections.
2022-05-20
12212
On Friday (May 20), U.S. oil prices basically maintained volatile trading this week. Although the conflict between Russia and Ukraine has always brought support to oil prices, many recent factors have begun to limit the rise in oil prices. Analysts pointed out that oil prices may start a wave Pullback trend.
Expectations of a sharp rate hike by the Federal Reserve are not good for oil prices, nor are concerns about a global economic slowdown bad for the demand outlook for oil prices. At the same time, the supply in the global crude oil market has eased, and there are signs of increased production of Iranian crude oil, Venezuelan crude oil, Saudi crude oil, and shale oil in the United States. This is expected to limit the continued rise in oil prices.
Next, let's take stock of some of the important fundamental news affecting the crude oil market this week.
US crude oil price daily chart
Brent Crude Oil Price Daily Chart
Supply disruptions due to Russia-Ukraine conflict, worries always support oil prices
Russian crude oil production fell significantly in April. From April 1 to 6, Russia’s oil production averaged 1.436 million tons per day, equivalent to about 10.52 million barrels, down 4.5 percent from March’s 11.01 million barrels, according to data from Russia’s Comprehensive Survey of Fuels and Energy (CDU-TEK). %, the largest drop in nearly two years.
The IEA (International Energy Agency) expects Russia to lose 1.6 million barrels per day of oil production capacity in May, rising to 2 million barrels per day in June. If sanctions against Russia escalate, lost capacity will rise to 3 million barrels per day from July.
Recently, around the sixth round of sanctions against Russia, a series of tug-of-war has been launched within the EU. On the 16th local time, in the EU foreign ministers meeting, the proposal to advocate the imposition of an oil embargo on Russia still failed to reach an agreement. On the surface, this is because Hungary and other "thorny" countries are dissatisfied with the EU's policy of "destroying European unity", but in essence, it highlights the EU's difficulty in getting rid of its dependence on Russia for energy, and its political priorities and setbacks for countries. The unacceptably embarrassing reality of the economy.
According to reports, US Federal Reserve Chairman Jerome Powell said on the 17th local time that interest rates will continue to rise before inflation falls.
The U.S. is facing the fastest inflation in 40 years, prompting the Federal Reserve to try to reduce price pressures, earlier this month raising interest rates by the most since 2000. Powell said policymakers agreed to discuss another wave of rate hikes in June and July.
Powell said the Fed must see "clear and convincing evidence that inflation pressures are easing and inflation is falling; if not, it will have to consider a more aggressive approach."
However, the outlook remains unclear, he said, with unprecedented challenges hitting the economy at the same time, including a once-in-a-century epidemic, ongoing supply chain issues, the impact of the Russian-Ukrainian conflict on commodities, prices, and unanticipated labor shortages.
Powell warned: "We don't know how the economy will go, and now the impact of many global events is really out of our control." He said whether to slow down the rate hike will "make a decision based on data in the next few months." judgment,” but the mandate to lower inflation is critical because price stability is “the cornerstone of the economy.”
Separately, Chicago Fed President Charles Evans said on Tuesday that he supports an initial aggressive monetary policy of raising interest rates and then a more "cautious" rate hike to allow time to assess the impact of inflation and rising borrowing costs on the labor market.
Evans said: "I think that the early implementation of measures is very important to accelerate the necessary tightening of financial conditions, and to demonstrate our commitment to contain inflation, thereby helping to contain inflation expectations." Evans pointed out that the current inflation rate is More than triple the Fed's 2% target - "too high" and the Fed should "quickly" raise policy rates to a neutral range of 2.25%-2.5%.
The Biden administration has begun to ease restrictions on Venezuelan oil. The Biden administration is reportedly starting to ease restrictions on Venezuelan oil. Specifically, the Biden administration has eased restrictions on major U.S. oil companies with assets in Venezuela. Senior administration officials said the move was aimed at supporting negotiations between Maduro's government and the U.S.-backed opposition.
The U.S. Treasury Department issued a "restricted" license to Chevron on Tuesday, allowing the company to begin a possible restart of production that has been halted under the U.S. embargo, according to officials who spoke on condition of anonymity. Hold talks with the Venezuelan government.
The license could be the first in a series of measures to lift the oil embargo, depending on the cooperation of Maduro's government, the report said. The U.S. could allow Chevron to start shipping equipment to Venezuela if the government renegotiates with the opposition to ensure "free and fair" elections in 2024. If the talks are successful, Chevron could be allowed to extract and sell Venezuelan oil.
Iran said it could increase exports if the market needed more crude. Iran has the ability to double its oil exports if there is enough demand, a senior Iranian official said, even though talks on the Iran nuclear deal have stalled.
Iran will "do its best to regain market share in crude oil and bring back customers," Mohsen Khojastehmehr, managing director of the National Iranian Oil Company, told reporters in Tehran on Saturday. While Iran has not released data on oil production or exports, analysts estimate Iran exports as much as 1 million barrels per day. The government's budget plan forecasts exports of 1.4 million bpd in the year to March 2023.
Saudi Arabia announced that it will continue to increase the country's crude oil production capacity. Saudi Energy Minister Prince Abdulaziz bin Salman told the outside world on the morning of the 16th local time that Saudi Arabia is continuing to increase its crude oil production capacity.
Abdulaziz said at the opening meeting of the 29th Middle East Oil and Gas Conference on the same day that Saudi Arabia will increase its crude oil production capacity to 13.2-13.4 million barrels per day from 2026 to 2027. He also warned that the current global epidemic is experiencing a recovery, so the market demand for crude oil continues to grow, but the industry is facing the reality of a dwindling number of oil facilities, so countries should continue to pay attention to investment in the energy industry to avoid a serious shortage of crude oil situation occurs.
Venezuela confirmed that U.S. and European oil companies were allowed to restart operations in Venezuela. Venezuelan Vice President Rodriguez tweeted on the 17th that the news that the U.S. government has allowed U.S. and European oil companies to restart operations in Venezuela is true. In a tweet, Rodriguez said that the illegal economic sanctions of the United States have caused great harm to the Venezuelan people, and hoped that this is the beginning of the lifting of these unilateral sanctions by the United States.
According to U.S. media reports on the 17th, the U.S. government allowed Chevron Petroleum Corporation of the United States to negotiate future operations in Venezuela on the same day, but Chevron was still prohibited from conducting upstream drilling activities and selling Venezuelan crude oil in Venezuela. It is also reported that the United States will also allow European oil companies still operating in Venezuela to export Venezuelan oil to Europe.
The free cash flow of U.S. shale oil companies exceeds the sum of the past 20 years, and U.S. shale oil production is expected to gradually increase. The skyrocketing price of oil and gas has caused U.S. shale oil producers to "change their lives against the sky". U.S. shale oil companies are enjoying plentiful cash flow. Soaring oil prices have changed the fortunes and balance sheet of an industry that had been fueled by a debt-fueled drilling binge.
At current crude prices, U.S. shale companies will generate about $180 billion in free cash flow this year, according to research firm Rystad Energy. U.S. shale companies will generate more cash this year than they have combined for the past 20 years, data show.
Raoul LeBlanc, head of S&P North America's oil and gas division, said: "This is a tsunami of cash, and these companies are almost done repairing their balance sheets. Shares of U.S. shale oil companies have resisted a decline in the broader market this year as soaring profits from shale oil boosted a recovery in shale oil companies. Meanwhile, the conflict between Russia and Ukraine has pushed up oil and gas prices, prompting the White House to call on shale operators to ramp up production quickly.
The number of shale oil rigs in operation has increased in recent months, led by private companies, but oil production remains well below the pre-pandemic peak of 13 million bpd. U.S. shale executives insist they will insist on reining in capital spending and drilling plans, spending profits on dividends, paying down debt and buying back stock.
The United Nations slashed its forecast for global economic growth this year. The United Nations on Wednesday slashed its forecast for global economic growth this year to 3.1 percent from 4 percent, noting that the Russia-Ukrainian conflict has sparked a rise in global food and commodity prices and fueled inflationary pressures that have disrupted the global economy from the coronavirus pandemic. fragile recovery.
The UN's downgrades to growth prospects for countries are wide-ranging and include some of the world's largest economies, such as the United States and the European Union, as well as most other developed and developing countries. The United Nations said in the "World Economic Situation and Prospects" report that the conflict between Russia and Ukraine has not only dealt a heavy blow to the economies of Ukraine and Russia, but also affected the economies of the two countries' Central Asian and European neighbors.
The EU economy is expected to grow just 2.7 percent this year, down from a 3.9 percent forecast in January, the report said. In 2020, 57.5% of the EU's energy consumption came from imports, and the economy was most directly affected by disruptions to Russia's energy supply. With imports from Russia accounting for nearly 25% of Europe's energy consumption in 2020, the report said a sudden stop in oil and gas imports from Russia is bound to further raise energy prices and exacerbate inflationary pressures. EU member states in Eastern Europe and the Baltic region have been severely affected, as their inflation rate is already well above the EU average.
The U.S. economy is expected to grow by 2.6% in 2022 and 1.8% in 2023, a sharp downward revision from the January forecast, due to stubbornly high inflation, aggressive monetary tightening by the Federal Reserve and direct spillovers from the Russia-Ukraine conflict. The UN also said that the economies of developing countries as a group are expected to grow 4.1% this year, down from 6.7% in 2021.
The UN also warned that the current forecast for global economic growth of 3.1% "faces significant downside risks from a further intensification of the Russian-Ukrainian conflict and a potential new wave of the epidemic". Global inflation is expected to rise to 6.7% in 2022, double the 2010-2020 average of 2.9%, as food and energy prices surge, according to UN forecasts.
US Treasury Secretary Yellen said the global economy faces the risk of stagflation. U.S. Treasury Secretary Yellen said on May 18 that while food and energy costs will eventually come down, much of the world is likely to be hit by stagflation, the coexistence of high inflation and slow economic growth, which will pose a serious challenge to the global economy . Yellen blamed the Russian-Ukrainian conflict as the main reason for the surge in commodity prices.
It is understood that Yellen's warning came as U.S. gasoline prices hit new highs. This week, the average price of regular gasoline in California hit $6 a gallon for the first time. JPMorgan noted that the rest of the U.S. will soon reach that level.
The risk of a recession has risen recently. US energy consultant Bob McNally told the media: US gasoline and diesel consumer prices have reached record highs, and there are no signs of slowing down. While not all recessions are triggered by surging oil prices, surging oil prices always fuel recessions.
Analysts at Guotai Junan Futures pointed out that the pullback is on and continue to pay attention to systemic downside risks. While short-term event disturbances continue to amplify oil price fluctuations, various sectors other than major asset classes and energy have continued to decline recently. We still need to pay attention to the deflation risk of positive trading on the disk and beware of corrections. Considering that crude oil tends to fall last in previous adjustments caused by demand contraction, if the systemic risks continue to be released, this bad news is likely to cover up the good news of the shortage of supply, and there is a possibility of another fall in the short term. In addition, despite the continued strength of oil prices both inside and outside the market, the liquidity has contracted significantly compared with the previous one. In the event of a reversal, oil prices can be very volatile.
Overall, the current crude oil market is clearly differentiated by region. Under the Russia-Ukraine issue, Europe has the most energy shortage, and the Asia-Pacific demand is the weakest under the influence of the epidemic. Therefore, under the circumstance that the epidemic situation in China has not been fully cleared dynamically and the delivery has not yet recovered substantially, even if the real demand has not contracted significantly, the market is likely to contract again in the short term. This kind of sentiment has been fully brewed in other sectors recently, and historically it has often been released at a very extreme rhythm, requiring continuous attention. In the long run, if the oil price in this round of deep correction, there is still a good opportunity to buy more on dips, and the average price in the next three quarters with low inventory and low supply will still have a high probability to remain high. In addition, considering that the epidemic in China will eventually be effectively controlled, coupled with the potential for stable growth in the second half of the year and the depreciation of the RMB exchange rate, the RMB-denominated SC may be stronger than Brent in the future.
Expectations of a sharp rate hike by the Federal Reserve are not good for oil prices, nor are concerns about a global economic slowdown bad for the demand outlook for oil prices. At the same time, the supply in the global crude oil market has eased, and there are signs of increased production of Iranian crude oil, Venezuelan crude oil, Saudi crude oil, and shale oil in the United States. This is expected to limit the continued rise in oil prices.
Next, let's take stock of some of the important fundamental news affecting the crude oil market this week.
US crude oil price daily chart
Brent Crude Oil Price Daily Chart
Supply disruptions due to Russia-Ukraine conflict, worries always support oil prices
Russian crude oil production fell significantly in April. From April 1 to 6, Russia’s oil production averaged 1.436 million tons per day, equivalent to about 10.52 million barrels, down 4.5 percent from March’s 11.01 million barrels, according to data from Russia’s Comprehensive Survey of Fuels and Energy (CDU-TEK). %, the largest drop in nearly two years.
The IEA (International Energy Agency) expects Russia to lose 1.6 million barrels per day of oil production capacity in May, rising to 2 million barrels per day in June. If sanctions against Russia escalate, lost capacity will rise to 3 million barrels per day from July.
Recently, around the sixth round of sanctions against Russia, a series of tug-of-war has been launched within the EU. On the 16th local time, in the EU foreign ministers meeting, the proposal to advocate the imposition of an oil embargo on Russia still failed to reach an agreement. On the surface, this is because Hungary and other "thorny" countries are dissatisfied with the EU's policy of "destroying European unity", but in essence, it highlights the EU's difficulty in getting rid of its dependence on Russia for energy, and its political priorities and setbacks for countries. The unacceptably embarrassing reality of the economy.
Fed's hawkish rate hike tone weighs on oil prices
According to reports, US Federal Reserve Chairman Jerome Powell said on the 17th local time that interest rates will continue to rise before inflation falls.
The U.S. is facing the fastest inflation in 40 years, prompting the Federal Reserve to try to reduce price pressures, earlier this month raising interest rates by the most since 2000. Powell said policymakers agreed to discuss another wave of rate hikes in June and July.
Powell said the Fed must see "clear and convincing evidence that inflation pressures are easing and inflation is falling; if not, it will have to consider a more aggressive approach."
However, the outlook remains unclear, he said, with unprecedented challenges hitting the economy at the same time, including a once-in-a-century epidemic, ongoing supply chain issues, the impact of the Russian-Ukrainian conflict on commodities, prices, and unanticipated labor shortages.
Powell warned: "We don't know how the economy will go, and now the impact of many global events is really out of our control." He said whether to slow down the rate hike will "make a decision based on data in the next few months." judgment,” but the mandate to lower inflation is critical because price stability is “the cornerstone of the economy.”
Separately, Chicago Fed President Charles Evans said on Tuesday that he supports an initial aggressive monetary policy of raising interest rates and then a more "cautious" rate hike to allow time to assess the impact of inflation and rising borrowing costs on the labor market.
Evans said: "I think that the early implementation of measures is very important to accelerate the necessary tightening of financial conditions, and to demonstrate our commitment to contain inflation, thereby helping to contain inflation expectations." Evans pointed out that the current inflation rate is More than triple the Fed's 2% target - "too high" and the Fed should "quickly" raise policy rates to a neutral range of 2.25%-2.5%.
Crude oil market supply shows signs of increasing
The Biden administration has begun to ease restrictions on Venezuelan oil. The Biden administration is reportedly starting to ease restrictions on Venezuelan oil. Specifically, the Biden administration has eased restrictions on major U.S. oil companies with assets in Venezuela. Senior administration officials said the move was aimed at supporting negotiations between Maduro's government and the U.S.-backed opposition.
The U.S. Treasury Department issued a "restricted" license to Chevron on Tuesday, allowing the company to begin a possible restart of production that has been halted under the U.S. embargo, according to officials who spoke on condition of anonymity. Hold talks with the Venezuelan government.
The license could be the first in a series of measures to lift the oil embargo, depending on the cooperation of Maduro's government, the report said. The U.S. could allow Chevron to start shipping equipment to Venezuela if the government renegotiates with the opposition to ensure "free and fair" elections in 2024. If the talks are successful, Chevron could be allowed to extract and sell Venezuelan oil.
Iran said it could increase exports if the market needed more crude. Iran has the ability to double its oil exports if there is enough demand, a senior Iranian official said, even though talks on the Iran nuclear deal have stalled.
Iran will "do its best to regain market share in crude oil and bring back customers," Mohsen Khojastehmehr, managing director of the National Iranian Oil Company, told reporters in Tehran on Saturday. While Iran has not released data on oil production or exports, analysts estimate Iran exports as much as 1 million barrels per day. The government's budget plan forecasts exports of 1.4 million bpd in the year to March 2023.
Saudi Arabia announced that it will continue to increase the country's crude oil production capacity. Saudi Energy Minister Prince Abdulaziz bin Salman told the outside world on the morning of the 16th local time that Saudi Arabia is continuing to increase its crude oil production capacity.
Abdulaziz said at the opening meeting of the 29th Middle East Oil and Gas Conference on the same day that Saudi Arabia will increase its crude oil production capacity to 13.2-13.4 million barrels per day from 2026 to 2027. He also warned that the current global epidemic is experiencing a recovery, so the market demand for crude oil continues to grow, but the industry is facing the reality of a dwindling number of oil facilities, so countries should continue to pay attention to investment in the energy industry to avoid a serious shortage of crude oil situation occurs.
Venezuela confirmed that U.S. and European oil companies were allowed to restart operations in Venezuela. Venezuelan Vice President Rodriguez tweeted on the 17th that the news that the U.S. government has allowed U.S. and European oil companies to restart operations in Venezuela is true. In a tweet, Rodriguez said that the illegal economic sanctions of the United States have caused great harm to the Venezuelan people, and hoped that this is the beginning of the lifting of these unilateral sanctions by the United States.
According to U.S. media reports on the 17th, the U.S. government allowed Chevron Petroleum Corporation of the United States to negotiate future operations in Venezuela on the same day, but Chevron was still prohibited from conducting upstream drilling activities and selling Venezuelan crude oil in Venezuela. It is also reported that the United States will also allow European oil companies still operating in Venezuela to export Venezuelan oil to Europe.
The free cash flow of U.S. shale oil companies exceeds the sum of the past 20 years, and U.S. shale oil production is expected to gradually increase. The skyrocketing price of oil and gas has caused U.S. shale oil producers to "change their lives against the sky". U.S. shale oil companies are enjoying plentiful cash flow. Soaring oil prices have changed the fortunes and balance sheet of an industry that had been fueled by a debt-fueled drilling binge.
At current crude prices, U.S. shale companies will generate about $180 billion in free cash flow this year, according to research firm Rystad Energy. U.S. shale companies will generate more cash this year than they have combined for the past 20 years, data show.
Raoul LeBlanc, head of S&P North America's oil and gas division, said: "This is a tsunami of cash, and these companies are almost done repairing their balance sheets. Shares of U.S. shale oil companies have resisted a decline in the broader market this year as soaring profits from shale oil boosted a recovery in shale oil companies. Meanwhile, the conflict between Russia and Ukraine has pushed up oil and gas prices, prompting the White House to call on shale operators to ramp up production quickly.
The number of shale oil rigs in operation has increased in recent months, led by private companies, but oil production remains well below the pre-pandemic peak of 13 million bpd. U.S. shale executives insist they will insist on reining in capital spending and drilling plans, spending profits on dividends, paying down debt and buying back stock.
Global economic slowdown weighs on crude demand outlook, bad for oil prices
The United Nations slashed its forecast for global economic growth this year. The United Nations on Wednesday slashed its forecast for global economic growth this year to 3.1 percent from 4 percent, noting that the Russia-Ukrainian conflict has sparked a rise in global food and commodity prices and fueled inflationary pressures that have disrupted the global economy from the coronavirus pandemic. fragile recovery.
The UN's downgrades to growth prospects for countries are wide-ranging and include some of the world's largest economies, such as the United States and the European Union, as well as most other developed and developing countries. The United Nations said in the "World Economic Situation and Prospects" report that the conflict between Russia and Ukraine has not only dealt a heavy blow to the economies of Ukraine and Russia, but also affected the economies of the two countries' Central Asian and European neighbors.
The EU economy is expected to grow just 2.7 percent this year, down from a 3.9 percent forecast in January, the report said. In 2020, 57.5% of the EU's energy consumption came from imports, and the economy was most directly affected by disruptions to Russia's energy supply. With imports from Russia accounting for nearly 25% of Europe's energy consumption in 2020, the report said a sudden stop in oil and gas imports from Russia is bound to further raise energy prices and exacerbate inflationary pressures. EU member states in Eastern Europe and the Baltic region have been severely affected, as their inflation rate is already well above the EU average.
The U.S. economy is expected to grow by 2.6% in 2022 and 1.8% in 2023, a sharp downward revision from the January forecast, due to stubbornly high inflation, aggressive monetary tightening by the Federal Reserve and direct spillovers from the Russia-Ukraine conflict. The UN also said that the economies of developing countries as a group are expected to grow 4.1% this year, down from 6.7% in 2021.
The UN also warned that the current forecast for global economic growth of 3.1% "faces significant downside risks from a further intensification of the Russian-Ukrainian conflict and a potential new wave of the epidemic". Global inflation is expected to rise to 6.7% in 2022, double the 2010-2020 average of 2.9%, as food and energy prices surge, according to UN forecasts.
US Treasury Secretary Yellen said the global economy faces the risk of stagflation. U.S. Treasury Secretary Yellen said on May 18 that while food and energy costs will eventually come down, much of the world is likely to be hit by stagflation, the coexistence of high inflation and slow economic growth, which will pose a serious challenge to the global economy . Yellen blamed the Russian-Ukrainian conflict as the main reason for the surge in commodity prices.
It is understood that Yellen's warning came as U.S. gasoline prices hit new highs. This week, the average price of regular gasoline in California hit $6 a gallon for the first time. JPMorgan noted that the rest of the U.S. will soon reach that level.
The risk of a recession has risen recently. US energy consultant Bob McNally told the media: US gasoline and diesel consumer prices have reached record highs, and there are no signs of slowing down. While not all recessions are triggered by surging oil prices, surging oil prices always fuel recessions.
Analysis points out that oil prices may start a correction
Analysts at Guotai Junan Futures pointed out that the pullback is on and continue to pay attention to systemic downside risks. While short-term event disturbances continue to amplify oil price fluctuations, various sectors other than major asset classes and energy have continued to decline recently. We still need to pay attention to the deflation risk of positive trading on the disk and beware of corrections. Considering that crude oil tends to fall last in previous adjustments caused by demand contraction, if the systemic risks continue to be released, this bad news is likely to cover up the good news of the shortage of supply, and there is a possibility of another fall in the short term. In addition, despite the continued strength of oil prices both inside and outside the market, the liquidity has contracted significantly compared with the previous one. In the event of a reversal, oil prices can be very volatile.
Overall, the current crude oil market is clearly differentiated by region. Under the Russia-Ukraine issue, Europe has the most energy shortage, and the Asia-Pacific demand is the weakest under the influence of the epidemic. Therefore, under the circumstance that the epidemic situation in China has not been fully cleared dynamically and the delivery has not yet recovered substantially, even if the real demand has not contracted significantly, the market is likely to contract again in the short term. This kind of sentiment has been fully brewed in other sectors recently, and historically it has often been released at a very extreme rhythm, requiring continuous attention. In the long run, if the oil price in this round of deep correction, there is still a good opportunity to buy more on dips, and the average price in the next three quarters with low inventory and low supply will still have a high probability to remain high. In addition, considering that the epidemic in China will eventually be effectively controlled, coupled with the potential for stable growth in the second half of the year and the depreciation of the RMB exchange rate, the RMB-denominated SC may be stronger than Brent in the future.
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