This week, crude oil prices continued to rise sharply. After a brief weakening in oil prices during the Mid-Autumn Festival holiday, Brent prices broke through one pressure level after another. The Brent November contract exceeded 77 US dollars per barrel on Thursday night, once again Returning to the previous high position, whether this wave can continue to break through will determine whether oil prices will reach 80 US dollars per barrel. In this wave of rising oil prices, the anticipation of a cold winter and the surge in fossil energy have played a mutually reinforcing role. Not only has crude oil prices remained strong, but even the natural gas and international coal markets have performed well, especially recently. The comments of investment banks and major crude oil traders regarding future price expectations have further strengthened this upward trend in the market. Therefore, while the market is trading fundamentals, it is also trading investment banks’ expectations for the future.
Goldman Sachs said that if this year’s northern hemisphere winter is colder than usual, oil prices are expected to reach $90/barrel. Jeff Currie, Goldman Sachs’ global head of commodity research, said that if this year’s northern hemisphere winter turns out to be colder than usual, Normally colder conditions could see oil prices soar to $90 a barrel. That’s $10/barrel higher than Goldman Sachs’ current forecast. At the same time, tight natural gas supplies in Europe will lead to higher oil demand amid constraints in global crude oil production. The rise in natural gas prices shows no signs of abating as tight supply accompanies surging demand, “particularly outside the United States,” with supply chains already under pressure to withstand any type of disruption.
Vitol, a major international trader, also said that US$80/barrel is not difficult for oil prices. As energy shortages, represented by natural gas, drive demand for other fuels, global oil demand will further climb by 500,000 barrels per day this winter. Vitol CEO Russell Hardy said that due to factors such as higher natural gas prices boosting oil demand, oil prices are likely to rise above $80 per barrel, which may force OPEC+ oil-producing countries to add more supply to the market.
For natural gas, Citi said if the winter is particularly cold, natural gas prices could surge to $100 per million British thermal units. Seasonal declines in European LNG stockpiles, surging demand from China and supply constraints from Russia to Nigeria have sent LNG prices soaring as a race for power-generating feedstock ahead of the northern hemisphere winter begins. Citi analysts said in a report that global natural gas prices are likely to continue a parabolic trend in the coming weeks and months, with strong demand and insufficient supply leading to a sharp tightening of the market. Any unexpected surge in demand or supply disruption could push prices higher. The knock-on effects of soaring natural gas prices on other fuels are also wider than initially thought. The switch to LPG for heating will affect naphtha and gasoline, increased use of kerosene will affect aviation fuel and diesel prices, and fuel oil will play a greater role in power generation.
Judging from the current trading logic of the market, the expectation of a cold winter supports the strength of fossil energy. Therefore, whether the expectation will become reality will determine whether energy prices will continue to be strong in the future. . However, with the rise in natural gas prices, there has been news of the bankruptcy of some natural gas traders in the UK. The high prices have also suppressed some market demand. Although Russia’s Nord Stream 2 project has made progress, it is still unknown when it will be fully operational. If it can be activated, the gas shortage market in Europe will be greatly alleviated. But we must also consider that the opening of Nord Stream 2 is not just a market behavior, but also a political bargaining chip between Europe, Russia and the United States, which adds uncertainty to the start of the gas transmission project.
In addition to the natural gas and crude oil markets, global coal prices are also rising. Eurostat data shows that the 27 EU countries imported 5 million tons of coal in July, a year-on-year increase of 35% and a month-on-month increase of 29%, mainly driven by the increase in coal-fired power generation in the region. Due to strong coal consumption expectations in northwest Europe this winter and shrinking natural gas supply, industry insiders expect coal imports in the region to remain high at the end of this year and even in the first quarter of next year. Data show that coal inventories in the three ports of Europe’s ARA have now dropped to 4.1 million tons, a decrease of 1.6 million tons from the same period last year. The decline in port inventories indicates that European coal imports are in short supply amid a tight supply of seaborne coal. The global shortage of coal has made the trends of the three major fossil energy sources, oil, natural gas and coal, closely related. The latest data shows that the spot price of thermal coal at the European ARA Port has risen to US$175/ton, and that of Newcastle thermal coal has risen to US$188.42/ton, both of which are close to the historical highs in 2008.
High prices suppress demand. As domestic thermal coal prices rise, domestic power rationing is already underway. The market cannot withstand such high prices while the global economy has not yet fully recovered. the cost of. Therefore, although the market is anticipating a cold winter, this is always unproven logic. Once Russia’s Nord Stream 2 is opened, or high prices begin to have side effects on demand, fossil energy will eventually usher in a wave of cooling. Based on a comprehensive assessment, we maintain a cautiously optimistic assessment of oil prices at the moment, but for the future, rising oil prices will further exacerbate market uncertainty.
Crude oil demand has not cooled significantly
From the demand side, the current crude oil market is still not very bad. Although China is tightening quotas, judging from the import data in August, imports have begun to recover. At the same time, from the perspective of processing volume, August’s data still remains at a high level compared with 2017 to 2019, and the current processing volume level also remains near the high level in 2020. This shows that China’s domestic demand is not a big problem for the time being.
At the same time, India’s August data is also relatively good. Gasoline consumption has exceeded the historical level for the same period. However, diesel sales are still in a low range. This is mainly due to The disruption of the epidemic has affected the demand of India’s domestic industry. EIA’s data also expresses the same view. At present, EIA’s expectations for future demand growth are still relatively optimistic. Therefore, when the demand side is improving and the supply side cannot recover quickly, crude oil prices will naturally have the conditions to maintain a high range.
If the market really experiences the expected cold winter, it will still promote the demand for crude oil. Under the current situation of relatively high energy prices, it is very likely that crude oil will The substitution effect of primary products. This means that demand for crude oil is likely to increase further based on current forecasts. This has placed higher and higher demands on the supply side. Currently, U.S. production has not fully recovered due to the impact of the hurricane. At the same time, OPEC is also controlling the growth of production, which will further aggravate the supply shortage.
From this perspective, if the demand side really exceeds expectations and there is a large gap on the supply side again, then it is not ruled out that OPEC may suddenly make a sharp increase at a certain meeting. Increase its crude oil production limit. At present, OPEC still regards adjusting market balance as its first priority, rather than pushing prices to a higher position. Therefore, under this situation, OPEC will naturally have the motivation to increase production, which is something we need to pay close attention to.
Global inventory levels have dropped to lows
In fact, the main The problem remains on the U.S. inventory side. Judging from the EIA data released this week, U.S. crude oil production and refinery demand are recovering. Data shows that U.S. crude oil production increased by 500,000 barrels per day. However, this increase in production was not only affected by the hurricane. The recovery of production also included natural growth. After all, at such a high price, shale oil has already been covered. Cost, mining at the current location can be said to be very profitable, so U.S. crude oil production will further recover in the future. However, from the demand side, the United States is about to enter an inflection point in refinery operating rates, which means that U.S. demand may weaken.
The focus of the market now is on the inventory side. U.S. crude oil inventories have fallen sharply for seven consecutive weeks, regardless of the annual increase in U.S. crude oil inventories or the trend of U.S. full-caliber inventories. Look, the current rate at which inventories are falling could keep crude oil prices high. This also means that the market needs to wait until US inventories reach an inflection point in growth before prices may weaken.
Now not only the inventories of the United States, but also the crude oil inventories of various countries around the world have seen a relatively obvious decline. From the perspective of onshore inventories, global onshore crude oil inventories have declined significantly, and the same is true for China’s onshore crude oil inventories. But we know that the national reserves of crude oil in China and the United States cannot be released easily, and even if they are released, they may be relatively slow. This means that, except for the national reserve inventories of China and the United States, there may not be many crude oil inventories available in other regions, and inventory levels are also at the lowest point in history. The low level of crude oil inventories, which function as reservoirs, will aggravate the impact of the imbalance between supply and demand, and will also amplify the main contradiction in the market.
The same is true for global floating tank inventories, which have clearly accelerated their decline recently. Therefore, from the inventory side, if the inventory does not reach an inflection point, then crude oil prices will continue to remain strong. If the demand side is expected to be relatively good, if the inventory reaches an inflection point, the supply side can only rely on the supply side. Although the recovery of U.S. production is currently underway, it is at a relatively slow pace. The market seems to be able to only expect OPEC to significantly increase production to cope with the current rapid decline in inventories.
The recent rise in crude oil prices is not only supported by fundamentals, but also by the spot market and macro level. From the perspective of monthly differences, the rise in oil prices is also accompanied by an increase in monthly differences, which is one of the relatively better performances of the spot market. In addition, the U.S. dollar index has been volatile recently, and the decline in the U.S. dollar index has also given bulls in the crude oil market some motivation.
In the short term, the prices of the three major fossil energy sources of coal, natural gas and crude oil are still promoting each other. While we are observing the trend of crude oil prices, we are also It is necessary to observe the price trends of the other two fossil energy sources. Judging from the recent price performance, natural gas and thermal coal still show no signs of correction, but such high prices also face greater risk of correction. If the prices of these two varieties become weak, it will also bring a slight drop to the crude oil market. Pessimism. Therefore, in the absence of an obvious trend in the market, investors are advised to operate with caution. </p
