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Market News Oil Market Weekly Review: Oil prices traded basically in shock this week, and the market is divided on the future prospects of crude oil
Oil Market Weekly Review: Oil prices traded basically in shock this week, and the market is divided on the future prospects of crude oil
On June 3, U.S. crude oil prices remained in volatile trading for the week of June 3. The factors of bullish and bearish oil prices are evenly divided, and the market is waiting for more news to bring guidance to oil prices.
2022-06-03
8812
On Friday (June 3), U.S. oil prices remained volatile this week. The factors of bullish and bearish oil prices are evenly divided, and the market is waiting for more news to bring guidance to oil prices.
In terms of crude oil demand, the peak summer travel period in the United States is coming, which is expected to support oil prices. However, given that the market remains concerned about the U.S. economic growth prospects, it is doubtful whether demand will be able to significantly improve. In addition, the European Union this week imposed the strictest sanctions against Russia, but the market still believes that Russian crude oil exports are resilient. At present, because crude oil is in a volatile range, the market still has obvious differences on the future trend of crude oil prices.
US crude oil price daily chart
Brent Crude Oil Price Daily Chart
The U.S. peak driving season traditionally begins on Memorial Day in late May and ends on Labor Day in September. Despite concerns that soaring fuel prices could dent demand, data have climbed in recent weeks, showing more and more people are traveling by car across the U.S.
As of May 26, data showed that the global travel index fell by 0.9% on a week-on-week basis. Weekly travel in China increased by 0.1% month-on-month, and traffic volume in Europe increased by 1.6% month-on-month. In the week ended May 18, global aviation kerosene fuel demand decreased by 0.3% week-on-week, European flights increased by 0.9% week-on-week, and the number of US passengers increased by 2.8% week-on-week. Airlines are facing pilot shortages and rising jet fuel costs, with many cutting future flight schedules as a result. The number of scheduled flights in China increased by 5.4% from a week ago as some cities began to ease restrictions on the outbreak.
Nearly 60 percent of Americans plan to take a vacation sometime this summer, the highest number since 2019, the data showed. This means that after two years of plagued by the epidemic, Americans are eager to travel. By contrast, gasoline prices at U.S. gas stations have risen by about 50 percent over the past year, and most experts expect U.S. gasoline prices to continue to climb.
After several days of negotiations, the leaders of EU member states agreed to ban more than two-thirds of Russian oil imports on the 30th, making concessions to landlocked EU countries including Hungary that insist on opposing the oil embargo. According to German media, this is the EU's toughest sanctions so far in the three-month conflict between Russia and Ukraine.
According to the analysis, the new sanctions will prohibit EU member states from buying crude oil and petroleum products imported by sea from Russia. The compromise deal is aimed at punishing Russia for conducting special military operations, thereby cutting funding for Russian military operations.
European Commission President von der Leyen pointed out that the ban will effectively cut about 90% of oil imports from Russia to the EU by the end of this year, as Germany and Poland have pledged to give up oil transportation through pipelines.
In response to the agreement reached by EU leaders to partially ban oil imports from Russia, Russia responded that Russia would find other importers.
Von der Leyen previously said that if the EU completely bans Russian oil and natural gas imports, then Russia can sell it to other countries at a higher price. In this way, Russia can earn more money, so the EU imports a lot of Russian energy to reduce Russia's income.
Russian exports remain resilient. Analysts say the rise in offshore crude inventories is because more and more crude is going further afield — particularly in Asia. Before the Russo-Ukrainian war, more Russian crude was shipped to nearby destinations in Northwest Europe.
The International Energy Agency (IEA) said in March that 3 million barrels a day of Russian oil were at risk. But data collected before the EU agreed to ban imports of Russian oil showed that Russian fuel exports to northwest Europe had fallen sharply. But Rosneft is still looking for buyers, at least for now, as the country's Urals crude trades below international benchmark Brent. Data shows more oil is flowing to India and beyond than ever before.
The analysis said that while Russian oil production has fallen since the start of the war, exports have remained "amazingly resilient". The company said that Russia has changed the route of exports to places like India, as seen in ship traffic through the Suez Canal. Analysts pointed to a 47% increase in traffic through the critical waterway in May compared to a year earlier.
Saudi Arabia has told Western allies that it is ready to boost oil production if Russian crude production falls sharply under the weight of sanctions, media reported, citing people familiar with the matter.
International oil prices rose for the sixth consecutive month in May, setting a record for the best consecutive rise since 2011. Although oil prices have risen sharply this year, Saudi Arabia has repeatedly ignored calls from the White House to speed up production increases. The country is concerned that energy tensions could worsen later this year, arguing that spare capacity needs to be preserved.
But fears of crude supply shortages intensified after the European Union agreed in principle this week to embargo some Russian oil. The EU has also struck a deal with the UK to ban insurers from insuring ships carrying Russian oil, to be implemented over the next six months. Industry insiders pointed out that this will completely "kill" Russia's opportunity to enter the international oil market.
The odds of a sharp drop in Russian oil production are growing. Before the Russia-Ukraine conflict, Russia's crude oil production accounted for more than 10% of the world's crude oil production. In addition, the global economic recovery from the epidemic may also boost crude oil demand.
Prices of everything from food to fuel have risen in the wake of the Russian-Ukrainian conflict. The Biden administration has repeatedly called on OPEC to speed up output increases in response to soaring gasoline prices and the worst inflation in decades.
Relations between the United States and the Saudi leadership have been strained as Saudi Arabia has repeatedly rejected calls from the White House and the Group of Seven nations to speed up oil production immediately. But several visits to Saudi Arabia by a high-level U.S. delegation, including White House Middle East policy coordinator Brett McGurk and White House energy envoy Amos Hochstein in recent weeks, have made relations between the two countries at odds, according to people familiar with the matter. improved.
Saudi Arabia has agreed to change its stance to stabilize oil prices as part of a settlement with the Biden administration, people familiar with the matter said. Saudi Arabia also assured that if a supply crunch hits the oil market, it will eventually respond by raising production.
The U.S. Federal Reserve's National Economic Situation Survey released on the 1st showed that U.S. economic activity continued to expand from April to mid-May, but economic growth slowed in some areas, and business contacts in some areas expressed concern Recession expresses concern.
The report, known as the Fed's Beige Book, showed that economic activity in most of the Fed's 12 jurisdictions grew slightly or moderately, with moderate growth in the rest; economies in four jurisdictions in New York, Philadelphia, Cleveland and Dallas. The growth rate has slowed significantly compared to the previous reporting cycle.
Contacts in most of the Fed's jurisdictions said manufacturing continued to grow, retail activity weakened due to rising prices, and residential sales fell due to rising home prices and lending rates, the report said. Labor shortages and supply chain disruptions are considered the biggest challenges facing economic growth. Rising interest rates, high inflation, the situation in Russia and Ukraine, and the new crown epidemic are also considered key factors affecting the economy.
Contacts in most jurisdictions cited strong price increases, especially for inputs, but some jurisdictions noted that the pace of price increases was starting to slow, the report said. In a tight labor market, most jurisdictions reported a modest or modest increase in employment, but one jurisdiction reported a significant drop in job applicants across several local businesses.
In response to labor shortages, many companies continue to automate deployments in addition to higher wages and greater job flexibility. During the reporting period, liaisons in 8 of the Fed's jurisdictions expressed lower expectations for future economic growth, and liaisons in 3 jurisdictions specifically expressed concerns about a recession.
Analysts at Bank of America Global Research wrote in a research note: Given that Brent is just around the corner from its $120/bbl target, we believe a sharp contraction in Russian oil exports could push Brent prices higher. as high as $150/barrel.
The analysis said that the European Union has continued to lobby Hungary to agree to embargo Russian crude oil recently. Once Hungary relaxes its mouth, the European Union can finally approve the oil ban on Russia, which may lead to a sharp drop in Russian oil exports. However, Hungary and other member states within the EU are still unable to reach a consensus on the embargo.
Ed Morse, global head of commodities research at Citigroup, said demand for oil and refined products is falling as the economy faces recession risks. The well-known oil market bear said in a televised interview on Tuesday that while Brent crude futures are currently trading around $120 a barrel, their fair value is in the $70/barrel range. Analysts continued to adjust demand forecasts for signs of an economic slowdown, Morse said.
Citi lowered its oil demand forecast to 2.2 million bpd from 3.6 million bpd at the start of the year. That's a big difference if the refining system is under stress, the world is at risk of recession and demand for diesel won't grow strongly, Morse said.
Analysts from Guotai Junan Futures pointed out that the stabilization and strength of the U.S. dollar index after the end of the previous adjustment has formed a strong restraint on major assets including crude oil, which has contributed to the correction. The supply-side market expectations have changed rapidly recently, and there has been a large difference in expectations around the true scale of future Russian oil exports under EU sanctions against Russia. However, we have noticed that the crude oil market is gradually blunting such positives and negatives. In recent days, the trend of crude oil and major assets such as U.S. stocks has become more synchronized. We still need to be alert to the negatives caused by tightening, and there is still a possibility of a slight correction in the short term. .
In addition, it is recommended to continue to pay attention to the inflation trend of the United States and Europe and the tightening rhythm of overseas central banks. The blurring of the rhythm of switching between inflation and stagflation is still the key to the uncertainty of the trend of commodities at this stage. If inflation remains high, cracking of refined oil products is likely to remain at a high level, and the medium-term trend of oil prices is still easy to rise and hard to fall. In addition, it is also necessary to pay attention to Russia's exports to the Asia-Pacific region, and be wary of the substantial increase in the supply to the Asia-Pacific at the same time as the reduction of supply to Europe, and the additional disadvantage caused to SC. In the long run, if there is a staged deep correction in oil prices in June, there will still be a good opportunity to buy on dips, and the average price in the third quarter with low inventory and low supply will still have a high probability of remaining high.
In terms of crude oil demand, the peak summer travel period in the United States is coming, which is expected to support oil prices. However, given that the market remains concerned about the U.S. economic growth prospects, it is doubtful whether demand will be able to significantly improve. In addition, the European Union this week imposed the strictest sanctions against Russia, but the market still believes that Russian crude oil exports are resilient. At present, because crude oil is in a volatile range, the market still has obvious differences on the future trend of crude oil prices.
US crude oil price daily chart
Brent Crude Oil Price Daily Chart
The summer travel peak in the United States is approaching, and crude oil demand is expected to be supported
The U.S. peak driving season traditionally begins on Memorial Day in late May and ends on Labor Day in September. Despite concerns that soaring fuel prices could dent demand, data have climbed in recent weeks, showing more and more people are traveling by car across the U.S.
As of May 26, data showed that the global travel index fell by 0.9% on a week-on-week basis. Weekly travel in China increased by 0.1% month-on-month, and traffic volume in Europe increased by 1.6% month-on-month. In the week ended May 18, global aviation kerosene fuel demand decreased by 0.3% week-on-week, European flights increased by 0.9% week-on-week, and the number of US passengers increased by 2.8% week-on-week. Airlines are facing pilot shortages and rising jet fuel costs, with many cutting future flight schedules as a result. The number of scheduled flights in China increased by 5.4% from a week ago as some cities began to ease restrictions on the outbreak.
Nearly 60 percent of Americans plan to take a vacation sometime this summer, the highest number since 2019, the data showed. This means that after two years of plagued by the epidemic, Americans are eager to travel. By contrast, gasoline prices at U.S. gas stations have risen by about 50 percent over the past year, and most experts expect U.S. gasoline prices to continue to climb.
EU issues toughest sanctions against Russia, supports oil prices
After several days of negotiations, the leaders of EU member states agreed to ban more than two-thirds of Russian oil imports on the 30th, making concessions to landlocked EU countries including Hungary that insist on opposing the oil embargo. According to German media, this is the EU's toughest sanctions so far in the three-month conflict between Russia and Ukraine.
According to the analysis, the new sanctions will prohibit EU member states from buying crude oil and petroleum products imported by sea from Russia. The compromise deal is aimed at punishing Russia for conducting special military operations, thereby cutting funding for Russian military operations.
European Commission President von der Leyen pointed out that the ban will effectively cut about 90% of oil imports from Russia to the EU by the end of this year, as Germany and Poland have pledged to give up oil transportation through pipelines.
In response to the agreement reached by EU leaders to partially ban oil imports from Russia, Russia responded that Russia would find other importers.
Von der Leyen previously said that if the EU completely bans Russian oil and natural gas imports, then Russia can sell it to other countries at a higher price. In this way, Russia can earn more money, so the EU imports a lot of Russian energy to reduce Russia's income.
Russian exports remain resilient. Analysts say the rise in offshore crude inventories is because more and more crude is going further afield — particularly in Asia. Before the Russo-Ukrainian war, more Russian crude was shipped to nearby destinations in Northwest Europe.
The International Energy Agency (IEA) said in March that 3 million barrels a day of Russian oil were at risk. But data collected before the EU agreed to ban imports of Russian oil showed that Russian fuel exports to northwest Europe had fallen sharply. But Rosneft is still looking for buyers, at least for now, as the country's Urals crude trades below international benchmark Brent. Data shows more oil is flowing to India and beyond than ever before.
The analysis said that while Russian oil production has fallen since the start of the war, exports have remained "amazingly resilient". The company said that Russia has changed the route of exports to places like India, as seen in ship traffic through the Suez Canal. Analysts pointed to a 47% increase in traffic through the critical waterway in May compared to a year earlier.
Saudi Arabia pledges to Western allies to boost crude output, pressuring oil prices
Saudi Arabia has told Western allies that it is ready to boost oil production if Russian crude production falls sharply under the weight of sanctions, media reported, citing people familiar with the matter.
International oil prices rose for the sixth consecutive month in May, setting a record for the best consecutive rise since 2011. Although oil prices have risen sharply this year, Saudi Arabia has repeatedly ignored calls from the White House to speed up production increases. The country is concerned that energy tensions could worsen later this year, arguing that spare capacity needs to be preserved.
But fears of crude supply shortages intensified after the European Union agreed in principle this week to embargo some Russian oil. The EU has also struck a deal with the UK to ban insurers from insuring ships carrying Russian oil, to be implemented over the next six months. Industry insiders pointed out that this will completely "kill" Russia's opportunity to enter the international oil market.
The odds of a sharp drop in Russian oil production are growing. Before the Russia-Ukraine conflict, Russia's crude oil production accounted for more than 10% of the world's crude oil production. In addition, the global economic recovery from the epidemic may also boost crude oil demand.
Prices of everything from food to fuel have risen in the wake of the Russian-Ukrainian conflict. The Biden administration has repeatedly called on OPEC to speed up output increases in response to soaring gasoline prices and the worst inflation in decades.
Relations between the United States and the Saudi leadership have been strained as Saudi Arabia has repeatedly rejected calls from the White House and the Group of Seven nations to speed up oil production immediately. But several visits to Saudi Arabia by a high-level U.S. delegation, including White House Middle East policy coordinator Brett McGurk and White House energy envoy Amos Hochstein in recent weeks, have made relations between the two countries at odds, according to people familiar with the matter. improved.
Saudi Arabia has agreed to change its stance to stabilize oil prices as part of a settlement with the Biden administration, people familiar with the matter said. Saudi Arabia also assured that if a supply crunch hits the oil market, it will eventually respond by raising production.
Worries about slowing U.S. economic growth weigh on oil prices
The U.S. Federal Reserve's National Economic Situation Survey released on the 1st showed that U.S. economic activity continued to expand from April to mid-May, but economic growth slowed in some areas, and business contacts in some areas expressed concern Recession expresses concern.
The report, known as the Fed's Beige Book, showed that economic activity in most of the Fed's 12 jurisdictions grew slightly or moderately, with moderate growth in the rest; economies in four jurisdictions in New York, Philadelphia, Cleveland and Dallas. The growth rate has slowed significantly compared to the previous reporting cycle.
Contacts in most of the Fed's jurisdictions said manufacturing continued to grow, retail activity weakened due to rising prices, and residential sales fell due to rising home prices and lending rates, the report said. Labor shortages and supply chain disruptions are considered the biggest challenges facing economic growth. Rising interest rates, high inflation, the situation in Russia and Ukraine, and the new crown epidemic are also considered key factors affecting the economy.
Contacts in most jurisdictions cited strong price increases, especially for inputs, but some jurisdictions noted that the pace of price increases was starting to slow, the report said. In a tight labor market, most jurisdictions reported a modest or modest increase in employment, but one jurisdiction reported a significant drop in job applicants across several local businesses.
In response to labor shortages, many companies continue to automate deployments in addition to higher wages and greater job flexibility. During the reporting period, liaisons in 8 of the Fed's jurisdictions expressed lower expectations for future economic growth, and liaisons in 3 jurisdictions specifically expressed concerns about a recession.
Markets have mixed forecasts for future crude oil prices
Analysts at Bank of America Global Research wrote in a research note: Given that Brent is just around the corner from its $120/bbl target, we believe a sharp contraction in Russian oil exports could push Brent prices higher. as high as $150/barrel.
The analysis said that the European Union has continued to lobby Hungary to agree to embargo Russian crude oil recently. Once Hungary relaxes its mouth, the European Union can finally approve the oil ban on Russia, which may lead to a sharp drop in Russian oil exports. However, Hungary and other member states within the EU are still unable to reach a consensus on the embargo.
Ed Morse, global head of commodities research at Citigroup, said demand for oil and refined products is falling as the economy faces recession risks. The well-known oil market bear said in a televised interview on Tuesday that while Brent crude futures are currently trading around $120 a barrel, their fair value is in the $70/barrel range. Analysts continued to adjust demand forecasts for signs of an economic slowdown, Morse said.
Citi lowered its oil demand forecast to 2.2 million bpd from 3.6 million bpd at the start of the year. That's a big difference if the refining system is under stress, the world is at risk of recession and demand for diesel won't grow strongly, Morse said.
Analysts from Guotai Junan Futures pointed out that the stabilization and strength of the U.S. dollar index after the end of the previous adjustment has formed a strong restraint on major assets including crude oil, which has contributed to the correction. The supply-side market expectations have changed rapidly recently, and there has been a large difference in expectations around the true scale of future Russian oil exports under EU sanctions against Russia. However, we have noticed that the crude oil market is gradually blunting such positives and negatives. In recent days, the trend of crude oil and major assets such as U.S. stocks has become more synchronized. We still need to be alert to the negatives caused by tightening, and there is still a possibility of a slight correction in the short term. .
In addition, it is recommended to continue to pay attention to the inflation trend of the United States and Europe and the tightening rhythm of overseas central banks. The blurring of the rhythm of switching between inflation and stagflation is still the key to the uncertainty of the trend of commodities at this stage. If inflation remains high, cracking of refined oil products is likely to remain at a high level, and the medium-term trend of oil prices is still easy to rise and hard to fall. In addition, it is also necessary to pay attention to Russia's exports to the Asia-Pacific region, and be wary of the substantial increase in the supply to the Asia-Pacific at the same time as the reduction of supply to Europe, and the additional disadvantage caused to SC. In the long run, if there is a staged deep correction in oil prices in June, there will still be a good opportunity to buy on dips, and the average price in the third quarter with low inventory and low supply will still have a high probability of remaining high.
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