U.S. crude oil futures exceeded US$80 per barrel for the first time since November 2014. As the global energy crisis boosted demand, OPEC+ oil-producing countries still maintained tight supply. Saudi Aramco said that the global natural gas shortage has been boosted. Oil demand for power generation and heating; the U.S. Department of Energy stated that there is no plan to use oil reserves at present, which provide the momentum for rising oil prices. In addition, the overall US economic data this week is optimistic, and the international situation has improved, further boosting the demand outlook.
U.S. crude oil rose 5.0% this week, marking the seventh consecutive week. Last week, the highest intraday hit 80.11 US dollars per barrel and closed at 79.59 US dollars per barrel; Brent crude oil rose 4.22% this week and the intraday highest hit 83.47 US dollars per barrel. It was the highest since October 2018, closing at US$82.58 per barrel.
OPEC+ maintains its monthly production increase of 400,000 barrels/day unchanged
According to the OPEC+ statement, in a short video conference on Monday, the ministers of the member states approved a plan to increase production by 400,000 barrels a day in November, rather than a larger increase in production as previously speculated. This provides upward momentum for oil prices.
Analysts said that they expect the uncertainty of the impact of the new coronavirus variant on demand and the possibility of new damage to the economy, putting pressure on OPEC+'s decision-making.
At present, Saudi Arabia's crude oil production is close to the level before the outbreak, and its oil revenue is the highest since 2018. Other member states basically abide by the monthly plan to gradually restore idle production capacity. According to an unnamed US official, Washington is also satisfied with the current pace of production increase.
Amrita Sen, chief oil analyst and co-founder of the consulting firm Energy Aspects, said that this means that Saudi Arabia hopes to change its monthly production plan "as few as possible." According to the statement, OPEC+ member states will hold another production meeting on November 4.
Goldman Sachs Energy Research Director Damien Courvalin said that due to the impact of energy consumption conversion, there will be an additional 650,000 barrels of oil per day later this year, and crude oil prices will reach the highest level in seven years. Inventories are about to fall to a 10-year low, which laid the foundation for another significant rise.
(Weekly chart of major US crude oil futures contracts)
Improved economic outlook boosts demand expectations
The economic data this week is relatively optimistic. The WTO has raised its global economic forecasts for this year and next, and the risk of US bond defaults has been temporarily eased. This has improved the expectations of crude oil demand and also provided rising oil prices.
The September ISM non-manufacturing activity index rose slightly to 61.9 from 61.7 in August. A reading above 50 indicates the expansion of the service industry, which accounts for more than two-thirds of US economic activity. Economists had previously predicted that the index would fall to 60 in September.
The increase in private employment in the United States in September exceeded expectations. As the new crown infection began to decline, restaurants and other high-touch companies increased hiring. The ADP National Employment Report showed that private employment increased by 568,000 last month, higher than the 428,000 expected by analysts.
Last week, the number of initial jobless claims in the United States recorded the largest drop in three months, which shows that as this wave of viral infections begins to recede, the labor market recovery is regaining momentum after the recent slowdown. In the week ending October 2, the number of initial jobless claims fell by 38,000 to 326,000 after seasonal adjustment, which was the largest drop since the end of June.
The U.S. Senate passed a bill on Thursday to raise the debt ceiling in the short term. The U.S. reined in on the brink of almost default in history, breaking the stalemate that has plagued the financial market for several weeks and alleviating market concerns.
"Everyone, including me, breathed a sigh of relief because we were able to reach an agreement that would allow us to reach an agreement before December 3, but we do need to address this issue from a long-term perspective," Yellen Zhou Said in an interview on the four afternoon. "So we have more work to do to successfully tide over the difficulties after December 3."
(Daily chart of the main contract of Brent crude oil futures)
The international situation has improved
In addition, the improvement of international relations further provides confidence to the crude oil bulls, because it means that the global economic outlook is further improving and the demand for crude oil is expected to increase further.
On October 8, Foreign Ministry Spokesperson Zhao Lijian introduced that in accordance with the spirit of the call between the two heads of state on September 10, Yang Jiechi, member of the Political Bureau of the CPC Central Committee and Director of the Office of the Central Foreign Affairs Commission, met with Sullivan, National Security Affairs Assistant to the President of the United States, in Zurich, Switzerland. . The two sides exchanged comprehensive, candid and in-depth views on Sino-US relations and international and regional issues of common concern. During the call, the two heads of state agreed to continue to maintain regular contact through various means. In order to implement the consensus of the two heads of state on the phone call, Yang Jiechi and Sullivan discussed holding a video meeting between the two heads of state before the end of the year.
On the morning of October 9, Liu He, member of the Political Bureau of the CPC Central Committee, Vice Premier of the State Council, and the Chinese leader of the China-US Comprehensive Economic Dialogue, held a video call with Dai Qi, the US trade representative. The two sides conducted pragmatic, candid and constructive exchanges and discussed three aspects: First, Sino-US economic and trade relations are very important to both countries and the world, and bilateral economic and trade exchanges and cooperation should be strengthened. Second, the two sides exchanged views on the implementation of the China-US economic and trade agreement. Third, the two parties have expressed their core concerns and agreed to resolve each other's reasonable concerns through consultation. The Chinese side negotiated the cancellation of additional tariffs and sanctions, and clarified its position on China's economic development model and industrial policies. The two sides agreed to continue communication in an attitude of equality and mutual respect, so as to create good conditions for the healthy development of economic and trade relations between the two countries and the recovery of the world economy.
The WTO has raised its forecasts for global trade growth in 2021 and 2022 to 10.8% and 4.7%, respectively, on the grounds that economic activity has recovered in the first half of this year.
WTO Director-General Oconjo Iweala said that if it can reach the forecast for 2021, it will be the largest year-on-year growth rate since 2010. "Trade is a key tool in the fight against the new crown epidemic. This strong growth highlights the important role that trade will play in the recovery of the global economy."
Edward Moya, senior market analyst at OANDA, said that there are many incentives to maintain the tightness of the oil market. With the rebound in economic activity and the relaxation of epidemic prevention restrictions, fuel demand has shown signs of improvement. In addition, people are worried that natural gas supply will be more tight in the cold winter.
According to Moya, the market highly anticipates that "the huge gap between supply and demand will not change in the foreseeable future."
European natural gas prices hit record, many British energy companies shut down
The shortage of global natural gas supply this week prompted a record high in natural gas prices, and also provided momentum for rising oil prices, as the soaring natural gas prices in Europe prompted power generation companies to switch to oil for power generation, increasing the demand for crude oil for power generation this winter.
European natural gas has risen by more than 60% in two days on Monday and hit a record high; the price of natural gas in the United Kingdom reached 400 pence/sam, a record high in the wholesale price of natural gas, and the price of natural gas futures in the United States also hit a 12-year high this week. Industry insiders pointed out that high demand for natural gas and reduced supply are the reasons for the surge in wholesale prices.
Analysts said that soaring natural gas prices and the extent to which fuel is switched from natural gas to oil will be key factors that need to be watched now.
John Kilduff, a partner at Again Capital in New York, said, "The fundamental background is tight supply, which will continue to drive oil prices higher steadily."
In the face of improving fuel demand, the energy market has tightened, and many people worry that the cold winter may further tighten the supply of natural gas.
Industry insiders call on the government to help companies and industries keep functioning. The UK's energy-intensive user organization, which represents steel, chemical and fertilizer companies, said that soaring costs have caused steel production to stop “at times of peak demand”. In the past few weeks, the high wholesale price of natural gas has led to the suspension of many British energy companies and the suspension of production in many industries.
BOFA GLOBAL RESEARCH said that despite the Russian President’s commitment to expand supply, it is expected that global and European natural gas markets will continue to be short.
Outlook: Pay attention to news about US crude oil reserves
There was news this week that the United States would use strategic crude oil reserves, but it was subsequently denied. The relevant news is relatively vague and uncertain. Investors still need to pay attention.
The Commonwealth Bank of Australia (CBA) analyst Vivek Dhar said in a report, "Oil prices are on the rise after the U.S. Department of Energy stated that it'currently' does not intend to use the U.S. Strategic Petroleum Reserve to ease the rise in oil prices."
However, a source from the U.S. Department of Energy stated that a Bloomberg reporter posted on social media that the Department of Energy "currently" did not consider the use of strategic oil reserves, which is not accurate, and added that "all tools are being considered." To cope with the tight energy supply in the market.
In general, the increase in oil prices this week is due to the soaring natural gas prices, encouraging power generation and some industries to switch to oil, and the Organization of the Petroleum Exporting Countries (OPEC) and Russia-led allies (OPEC+) decided to insist on an increase of only 400,000 barrels in November /Daily supply plan. The surge in natural gas prices and the degree of fuel conversion from natural gas to oil will be key factors that need attention now.
In the coming week, OPEC, EIA and IEA will all publish monthly reports on the crude oil market, and investors need to focus on them.
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