Crude oil weekly review: Cushing crude oil is about to bottom out! Oil prices have risen for nine consecutive weeks!

US crude oil rose 1.6% this week to US$83.98 per barrel, marking the ninth consecutive week of gains. With the outbreak of the European energy crisis, OPEC+ refused to further increase production and power plant fuel switching and other factors, the inventory of the largest crude oil inventory center in the United States is rapidly bottoming out, which pushed oil prices to a seven-year high. At the same time, the commodity price correction and the European epidemic's counterattack may bring a drag on oil prices.

Inventories at the largest U.S. crude oil storage center fell to the level the last time oil prices touched $100

The inventories of the largest crude oil warehouse in the United States are rapidly approaching the critical level the last time oil prices exceeded $100 a barrel.

The storage tanks in Cushing, Oklahoma require a minimum amount of oil to maintain normal operations, and traders generally believe that this level is about 20 million barrels. Unusually in the past, inventories have fallen by more than 4 million barrels to 31 million barrels in the past two weeks. Due to the unlimited global demand for light sweet crude oil from the United States, inventories are expected to continue to decline rapidly.

Traders of some of the world's largest oil companies said that inventories may fall further to lows in the next few weeks, prompting the market to turn more bullish.

" Just because of the drought in Cushing's energy storage, crude oil prices may have reason to rise to new levels ," said Bob Yawger, head of the U.S. futures department of Mizuho Securities. Declining, oil prices may soon get out of control."

Cushing’s rapid depletion indicates that global oil supplies are tight and may push oil prices higher from current levels. The soaring oil prices are already driving up the cost of road fuel, freight and air transportation, and leading to rising inflation, and many countries have just recovered from the economic slump driven by the epidemic.

A senior trader at one of the largest US crude oil exporters said demand for Cushing oil has soared because it is the cheapest crude oil in the world and inventories have fallen rapidly. The person familiar with the matter added that demand for U.S. crude oil is higher than ever before, and pointed out that South Korea’s November crude oil purchases will hit an all-time high.

Traders said that Asian buyers, including India and Taiwan, are still in the market, and they will load US crude oil in early November, which highlights the enthusiasm for seeking purchases.

The global energy crisis prompts Asia to turn to the U.S. for oil

Asia’s demand for US oil is rising because the energy crisis has boosted other crude oil prices priced in global Brent crude oil futures contracts.

Traders said that Chinese and other Asian buyers have been snapping up the sour crude oil supertanker delivered by the United States in November and are seeking to deliver more in December.

The increase in Asian demand for U.S. crude oil comes after the general recovery of road fuel and freight activities and before the possibility of more oil demand in the power sector in the winter. The shortage of global fossil fuel supply is driving prices up.

Saudi Energy Minister Abdulaziz bin Salman recently reiterated that OPEC and its allies need to take a gradual, phased approach to restore production.

John Kilduff, a partner at Again Capital LLC, said that structural tightness in supply has always been the biggest driver of the market, and no one in the market really expects OPEC+ to increase production significantly in the near future.

Elisabeth Murphy, an upstream analyst for ESAI Energy LLC's North American business, said that due to the shift from natural gas to oil, Europe and Asia will increase demand for crude oil by approximately 700,000 barrels per day this winter.

Given that the United States is also about to usher in a cold winter, the increase in overseas demand will mean that US refineries face more competition. In addition, hurricane "Ada" has caused a loss of 30 million barrels of local supply, and some production will not recover until next year.

European energy crisis is expected to be difficult to resolve in the short term

Russia’s central bank governor Nabi Urina said on Friday that inflationary pressure comes from the rise in global natural gas prices. US President Biden also mentioned earlier that the high natural gas prices were due to OPEC's refusal to supply.

Under such circumstances, Europe urgently needs Russian natural gas to help resolve the energy crisis.

As JPMorgan Chase pointed out: Without additional supply from Russia, the winter premium currently included in European natural gas prices cannot be significantly reduced until the weather outlook in January becomes more certain.

According to RIA Novosti, on the 22nd local time, Russian President Vladimir Putin said while attending the "Valdai" forum meeting that the second branch of the "Beixi-2" natural gas pipeline may complete gas injection in mid-December 2021. If the license for the "Beixi-2" natural gas pipeline is successfully processed in Germany, Russia can immediately send natural gas to Europe through the pipeline.

The first branch of the "Beixi-2" natural gas pipeline completed technical gas injection on October 18. The "Beixi-2" natural gas pipeline project has two branch lines, starting at Russia and ending at Germany. The annual transmission capacity is estimated to be 55 billion cubic meters. Putin estimates that Europe's current natural gas gap is 70 billion cubic meters.

The permit for the "Beixi-2" natural gas pipeline is currently being processed. The license application is divided into two parts. First, the German regulator will prepare a draft decision, and then the European Commission will evaluate it. The entire process may take several months in accordance with relevant legal requirements. The German regulatory agency received the full set of documents required for the application in September.

People familiar with the matter said that Russia may not send natural gas to energy-deficient areas in Europe unless European regulators first approve its "Beixi No. 2" natural gas transportation pipeline.

This may mean that the energy crisis in Europe may continue before the license application is successful.

The widespread shortage of natural gas and coal is forcing the power industry to increasingly switch to oil.

Epidemic rebounds sharply in many European countries

With the advent of winter when influenza and other diseases frequently occur, the new crown epidemic in many European countries has rebounded significantly in recent days. Experts believe that the rebound of the epidemic is related to seasonal factors, low vaccination rates, possible decline in vaccine effectiveness over time, and relaxation of epidemic prevention and control measures.

According to Russian media reports on the 21st, Russia’s newly diagnosed and death cases in the past 24 hours have reached new highs, reaching 36,339 and 1,036 respectively.

Russian President Vladimir Putin announced on Wednesday that from October 30 to November 7 the country will take paid holidays to fight off a new wave of epidemics. The worsening of the epidemic situation in Russia is related to the low vaccination rate in Russia.

According to the British "Daily Telegraph", CNN and other media reports, in the past two weeks, nearly 500,000 people in the UK have been infected with the new crown virus.

According to data released by the World Health Organization on the 19th, in the past 24 hours, the UK has become the country with the largest number of new cases in a single day in the world.

At the same time, other European countries are also in the quagmire of the epidemic.

Agence France-Presse, Reuters and other media said that data from the Ukrainian government on the 21st showed that the country's new confirmed cases in a single day hit a new high since the outbreak, reaching 22,415.

Bulgaria is experiencing its worst epidemic crisis since April this year. The number of new infections in the country on Tuesday reached 3,246, more than double the number a week ago.

According to data released by the Ministry of Health of Slovakia on Wednesday, the number of new confirmed cases in a single day in the country reached a new high since March 9, at 3480.

The Polish Minister of Health said on Wednesday that there had been an "explosion" of cases in the country. On the 21st, the Polish government announced that the number of new infections in a single day exceeded 5,000, the first time since May.

The epidemic may cool down oil prices when the current energy crisis is fully erupted, but if countries insist on no longer blockades, I am afraid that the drag on oil prices will be relatively limited.

Be wary of the drag on oil prices from commodity price pullbacks

China's thermal coal futures fell to the limit for the third consecutive night on Thursday, and the price of thermal coal has fallen by more than 600 yuan/ton in just a few days.

The National Development and Reform Commission said on Tuesday that it will closely monitor coal market dynamics and price trends with relevant departments, sort out and investigate contradictions and problems in the work of ensuring supply and stabilizing prices, and coordinate and resolve them in a timely manner. Market supervision departments will intensify law enforcement inspections, adhere to "zero tolerance", and severely crack down on illegal activities such as spreading false information, price collusion, price bidding, and hoarding, so as to effectively maintain market order.

On October 22, the Price Department of the National Development and Reform Commission convened a meeting of the China Coal Industry Association and some key coal companies to study specific policies and measures to stop coal companies from making huge profits and ensure long-term stability of coal prices in a reasonable range. This is the ninth consecutive document issued by the National Development and Reform Commission in just 4 days since October 19, aiming to do a good job in ensuring supply and price stabilization in the coal market.

In the next few trading days, the black series led by thermal coal, coking coal, and coke fell on a large scale, and the market risk sentiment quickly cooled. This also caused a sharp correction in oil prices on Wednesday and Thursday. However, due to the positive sentiment of fundamentals, oil prices were still able to close. Narrow downtrend and even rise against the trend.

(U.S. crude oil daily chart)

The market expects oil prices to rise

Jay Hatfield, CEO of Infrastructure Capital Consulting, said: As the epidemic reached its peak and the United States opened up the entry of vaccinated travelers, crude oil prices continued to rise by nearly 30% for three months. We expect this upward trend to continue, because we will move into November, the colder the weather will stimulate more demand for heating oil, and the holiday will promote the increase in gasoline demand.

Infrastructure Capital Advisors expects that the oil transaction price in 2022 will be in the range of US$80 to US$100 . The reason is that international travel-related demand increases, the demand caused by fuel switching, and the global natural gas transaction price is equivalent to a barrel after the conversion. 180 dollars of oil.

IHS Markit energy market analyst Marshall Steeves said that global oil inventory levels are still tight, because demand growth is still stable, but output growth has lagged. OPEC+ insisted on increasing production by 400,000 barrels per day per month, while production in the United States actually declined last week, and the recovery of production in the post-epidemic period was slow.

Sevens Report Research's analysis report on Friday pointed out that energy commodities are unlikely to rise every day, and we can expect that the sector will remain volatile. But in the final analysis, supply is still limited and demand is strong. If the weather enters the winter early and it starts to get colder, you should be prepared for the price increase of energy commodities.

Mitsubishi UFJ said in its "Oil Market Weekly Report" last week that because of the energy crisis, $80 may just be the bottom of oil prices.

The World Bank predicted in its latest "Commodity Market Outlook" on Thursday that energy prices are expected to continue to rise slightly in 2022 after rising by more than 80% in 2021.