National Broadcasting Corporation Financial Channel (CNBC) well-known Jim Cramer (Jim Cramer) Cramer predicts that without this agreement, oil prices could rise to $100. "The drop in crude oil prices is actually good news for the overall market...it means that costs for everyone will be reduced," Kramer said.
Influencing factors: COVID cases up
Data show that last Saturday, the number of newly diagnosed cases in the UK in a single day exceeded 50,000, a new high since January. The CDC also severely warned people not to travel to the UK on Monday, and raised the UK's warning level to the highest level: level four-very high.
On the eve of the opening ceremony of the Tokyo Olympics on July 23, the number of cases in the Olympic Village in Japan has continued to increase, and Tokyo has newly confirmed more than 1,000 new crown cases for several days.
Some countries and regions have begun to re-introduce blockade measures. Thailand announced the expansion of areas for epidemic control, and Hanoi, Vietnam implemented a stay-at-home order.
At the same time, although the United Kingdom completely lifted its anti-epidemic restrictions on Monday, the surge in the number of new cases has raised concerns that the United Kingdom may restart the blockade. British Prime Minister Boris Johnson said on Monday that there is no guarantee that the unblocking plan will not be reversed.
Influencing factors: supply up
OPEC+ resolved the deadlock in increasing production last week and eliminated some uncertainties in the market. The organization will gradually increase production by 400,000 barrels per month from August. However, some analysts believe that the increase in OPEC+ production is not enough to fill the market gap. Ed Morse, Head of Commodity Research at Citigroup, said, “Adding 400,000 barrels of crude oil to the market every day will prove to be insignificant. In short, the market is very tight.”
The rebound is not over
Oanda analyst Edward Moya predicts, "The commodity rebound is not over yet, but there may be a major breakthrough here. WTI crude oil fundamentals still support a sharp rise again, and it will only take another month or so to get rid of the ever-increasing hedging. mood."
The market's response to OPEC+'s increase in production may be too pessimistic, because if OPEC+ does not reach an agreement, the alternative results will only be worse. For example, Saudi Arabia and the United Arab Emirates (UAE) are opposed to each other over production quotas. OPEC cannot unite, leading to the breakdown of the production quota agreement and more supply flowing into the market.
Research firm Sankey Research analyst Paul Sankey wrote, “The agreement will eliminate tail risks in the market, especially oil stocks, because if UAE splits from OPEC/Saudi Arabia, it will launch a battle for market share.”
According to the current agreement, supply will remain relatively limited, and OPEC will maintain control. Saudi Arabia has stated that it hopes that prices will remain high, and will act as soon as possible to ensure that this goal is achieved, as long as OPEC can unite.
For oil producers, the current situation is still profitable. Excluding Monday, North American oil and gas producers' stocks have fallen 12% this month. Morgan Stanley analyst Devin McDermott pointed out that although it is still up 50% so far this year, it is still 25% behind the price of commodities themselves since the beginning of 2020.
He believes that "there is room for further catching up because the valuation is still 65% lower than the broader market, and the historical average is 30%." For 10 years, manufacturers' drilling activities have been unprofitable, and corporate strategies can only ignore profits. However, everything has changed this year. In the first quarter, the group generated the highest free cash flow in more than 10 years.
Bank of America analyst Chase Mulvehill wrote that OPEC+'s decision to continue to reduce production in the next few months shows that Saudi Arabia is willing to give up some markets to US producers in exchange for higher prices.
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