Event: on January 26, 2022, the settlement price of Brent crude oil futures and WTI crude oil futures reached US $89.96/barrel and US $87.35/barrel respectively, a new high since 2015.
From the beginning of December 2021, the price of crude oil will start a new round of price rise. Looking back on 2021, the annual crude oil price showed an upward trend, and the center continued to rise, mainly due to the continuous recovery of the demand side and the restraint of the supply side. The recurrence of the global epidemic (the emergence of covid-19 mutant virus Delta and Omicron) and its impact on the demand side led to two sharp pullbacks in crude oil prices during the year. Since the beginning of December 2021, crude oil prices have started a new round of upward trend. The settlement prices of Brent and WTI crude oil have increased from US $68.86/barrel and US $65.57/barrel on December 1, 2021 to US $89.96/barrel and US $87.35/barrel on January 26, 2022, with an increase of 30.62% and 33.22% respectively; Among them, from January 1 to 26, 2022, the settlement prices of Brent and WTI crude oil increased by 13.90% and 14.81% respectively.
Geopolitics, the weakening influence of Omicron and the decline of crude oil inventories are the short-term catalytic factors leading to the recent rise in crude oil prices. (1) The conflict between Russia and Ukraine has affected the market’s expectations for the reduction of global crude oil supply: the conflict between Russia and Ukraine has a long history, and recently Russia and Ukraine have once again entered the tension on the edge of conflict. Due to Russia’s important position in the world crude oil market (according to OPEC world, Russia’s daily average crude oil production in 2021q4 is 10.8 million barrels / day, accounting for more than 10% of the world’s total output), the market is worried that Russia will be subject to economic export sanctions due to the conflict between Russia and Ukraine, which will affect the supply of crude oil market. Among them, Russian crude oil exports account for about 42% – 45% of the output. If Russian crude oil exports are sanctioned, the impact on the supply of global crude oil market will be greater than 5%. (2) The impact of Omicron on the economy is less than expected: the impact of the variant covid-19 virus Omicron strain on the demand for crude oil is not as serious as expected. The relaxation of covid-19 pneumonia epidemic control measures in some countries has led to the growth of crude oil demand, thus pushing up oil prices. (3) US crude oil inventories fell continuously: according to EIA data, on January 21, 2022, US dollar crude oil inventories (including strategic oil reserves) amounted to 1775.47 million barrels, which has fallen for seven consecutive weeks, driving up crude oil prices.
What about the price of crude oil in 2022? Optimistic about the upward fluctuation of crude oil prices. We believe that the supply and demand of the global crude oil market will maintain a tight balance in 2022: (1) supply side: the idle capacity is limited, and the supply increment is less than expected. OPEC: insufficient actual production capacity. From August to December 2021, the daily average crude oil production increment is lower than the planned value of 400000 barrels / day, which shows the shortage of OPEC’s actual production capacity. Therefore, it is expected that the OPEC supply increment in 2022 will continue to be lower than expected. In the United States: the long-term lack of investment led to the continuous decline of DUCS and the shortage of surplus capacity. On the one hand, according to EIA data, in December 2021, the number of drilled but unfinished wells (DUCS) in the United States was 4616, a decrease of 214 compared with November 2021, and has been at the bottom since 2014. The interval between drilling and completion of shale oil in the United States is several months, which leads to a large amount of Duc inventory, which can be used by producers as working inventory to manage oil production, that is, the number of DUCS reflects the remaining capacity of shale oil in the United States, and the continuous decline of DUCS may lead to limited growth of crude oil production in the United States in 2022. On the other hand, according to the statistics of S & P capital IQ, the capital expenditure of 27 major oil producers in the United States tripled from 2004 to 2014, reaching US $294 billion, and then reduced to US $111 billion in 2020. It is expected that the capital expenditure will reach about US $135 billion in 2022, with a year-on-year increase of 21.6%, but it is still less than half of the investment level in 2014. Due to the short production cycle of shale oil in the United States and the decline rate of production, continuous capital investment is needed to support the continuous growth of production. The insufficient capital expenditure may lead to limited increment of us shale oil in 2022. In Russia, according to the data of Rosneft, the total output of Russian crude oil in 2021 is about 10.9 million barrels / day, which is close to the level of 2019. Russian oil minister Novak said that Russia’s crude oil output will rise to 11.33 million barrels / day by may 2022. Therefore, the future increment space of Russian crude oil output is about 430000 barrels / day, and the increment is limited. (2) Demand side: the impact of the epidemic has been effectively controlled, and the demand is expected to exceed the pre epidemic level. According to OPEC’s monthly report in January 2022, the global demand for crude oil is expected to reach 100.79 million barrels / day in 2022, exceeding the demand of 100.10 million barrels in 2019. To sum up, we believe that in 2022, the fundamentals of global crude oil supply and demand are expected to continue to maintain a tight balance, which will continue to drive the upward fluctuation of crude oil prices.
Investment suggestion: we judge that the crude oil price may continue to fluctuate upward in 2022 and remain at a medium high level throughout the year. Therefore, we suggest paying attention to the upstream crude oil mining industry whose profitability benefits from the rise of crude oil and the oil service industry which benefits from the increase of capital expenditure under high oil prices. We suggest paying attention to Petrochina Company Limited(601857) , China Petroleum & Chemical Corporation(600028) and Zhongman Petroleum And Natural Gas Group Corp.Ltd(603619) with new crude oil mining and sales business.
Risk tip: the risk of repeated epidemic affecting crude oil demand.
