With the shale oil revolution in the past few years, many people may not expect to see oil prices breaking 100 in their lifetime. However, this “old energy counterattack” came so suddenly.
At present, the international oil price is only one step away from the $100 mark, and the last time the price came near this point dates back to August 2014. With the shale oil revolution in the past few years, many people may not expect to see oil prices breaking 100 in their lifetime. However, this “old energy counterattack” came so suddenly.
As of 18:30 on February 7, Beijing time, WTI crude oil prices in New York and Brent crude oil prices were $91.06 and $92.45 respectively, up nearly 35% compared with the low level after the sharp decline of oil prices during the outbreak of Omicron in November last year, and there are no signs of stopping the rise – the resumption of demand after the epidemic in European and American countries, the dispute between Russia and Ukraine Inventory and idle capacity are at historically low levels (geopolitical conflicts impact supply, insufficient upstream investment in previous years) and OPEC + production expansion capacity is limited. These factors have led to the management fund constantly raising oil prices, and the proportion of short and long crude oil has decreased to 16%.
Most of the futures traders interviewed by the first financial reporter believe that the oil price is expected to exceed $100 in the first and second quarters. Goldman Sachs recently warned that the core basis for bullish oil prices is that the two key buffers (inventory and idle capacity) are at historic lows. By summer, OECD inventory may fall to its lowest level since 2000, and OPEC + idle capacity will also fall to an all-time low of 1.2 million barrels / day. Six precedents since 1990 show that the lack of supply elasticity requires the forward contract price to rise by 25% ~ 100% in order to achieve the effect of destroying demand and re balance supply and demand.
Analysts said that the pressure of the US Federal Reserve on the rapid expansion of oil futures financing will be hindered by the failure of the US Federal Reserve to pay back the oil futures debt in recent years. In addition, in the context of medium and long-term global carbon neutrality, international oil companies are gradually transforming to new energy. Even if independent listed shale oil enterprises maintain their current production behavior, they are also facing the problem of losing investment attraction. Under Biden’s new energy policy, it will be more difficult for enterprises to obtain mining licenses in the future, and various factors will limit the expansion of capital expenditure of shale oil enterprises, Further, the recovery rate of shale oil production is relatively slow.
crude oil supply gap expanded significantly
During the Spring Festival, the number of newly diagnosed patients in major European and American countries fell, and the number of hospitalized and critically ill patients in the United States and Britain continued to decline. The unsealing measures launched by various countries boosted the expectation of crude oil demand. At the same time, Russia Ukraine geopolitical relations continued to be tense, and the northeast of the United States encountered snowstorms, jointly pushing the international oil price to exceed US $92.
Low inventories and declining idle capacity are the driving force of oil prices that can not be ignored. JPMorgan predicted at the beginning of the year that OPEC’s idle capacity will be reduced this year, pushing up the risk premium of oil prices. The agency expects oil prices to rise to $125 a barrel this year and $150 a barrel in 2023. “We see a growing recognition of underinvestment in global supply.” Assuming production based on current quotas, OPEC’s idle capacity will fall from 13% in the third quarter of 2021 to 4% of total capacity by the fourth quarter of 2022, the bank said.
The combined effect of insufficient investment in OPEC + oil producing countries and rising oil demand after the epidemic may lead to a potential energy crisis. The agency expects demand to return to pre epidemic levels in the second half of 2022. In view of the high global refining profits, refineries are encouraged to increase the operating rate, and the willingness of spot crude oil procurement is strong; On the other hand, with the decline of idle capacity, OPEC +’s ability to stabilize the crude oil market is weakening, although OPEC still insists on increasing production by 400000 barrels per day per month.
Fu Xiao, head of commodity market strategy of BOC International, told reporters that some OPEC member countries had weak output growth due to insufficient upstream investment. According to the International Energy Agency (IEA), OPEC + crude oil production rose only 190000 barrels per day in December last year. Among them, Russia’s crude oil production in December last year remained unchanged at 10.9 million barrels / day, mainly due to the decline in the oil field production of Rosneft. The Russian energy minister expects that the domestic production will return to the level before the epidemic in April and may this year.
“It is expected that the production of old oil fields will be increased in the first half of the year, which is mainly reflected in the fact that we need to keep the production of new oil fields in the first half of the year. At present, we need to increase the production of old oil fields in the second half of the year.” She said that OPEC member states also face similar problems. It is expected that OPEC’s idle capacity will fall to 2.3 million barrels per day by December 2022, far lower than 7.1 million barrels per day in March last year.
Coincidentally, Goldman Sachs also warned that the supply imbalance will always end with rising oil prices and undermining demand, so as to bring the supply back to equilibrium.
Damien courvalin, head of commodity energy strategy at Goldman Sachs, mentioned that by summer, OECD inventory will fall to its lowest level since 2000, and OPEC + idle capacity will also fall to an all-time low of 1.2 million barrels / day. What is happening is that consumers trying to ensure physical supply will first push up the spot premium. At that time, the lifting of hedging by manufacturers and consumers’ forward purchase behavior will lead to the rise of long-term futures prices. Normalize future inventory and idle capacity by disrupting the combination of demand and increasing supply.
Historically, the rise of forward contract prices has been caused by insufficient supply. Goldman Sachs, for example, said that in 1999 / 2000, 2004 / 2005 and 2007 / 2008, the lack of supply elasticity required a 100% rise in long-term prices to curb demand. However, in 2018, considering the high supply elasticity of shale oil, rebalancing only required a 25% increase (at that time, the oil price rose to $85 / barrel), and the output growth of the United States reached a peak of 2.1 million barrels / day at the end of the same year. Goldman Sachs predicts that the rebalancing from 2022 to 2023 will be between the above two ranges, requiring sufficient rise in oil prices, which can not only improve the growth of shale oil production (at present, the elasticity is low), but also slow down the growth of global oil demand.
geopolitical risks push up oil prices
It can not be ignored that geopolitical risk is the catalyst for the rise of oil prices.
Zhao Yaoting, global market strategist of Jingshun Asia Pacific region, told reporters that if the Ukrainian problem escalates to a local war, the global oil supply will be greatly affected. In this case, the oil supply is expected to decline by 2.3 million barrels a day, which will almost double the oil price to about $150 a barrel, reducing global GDP by 1.6%.
Fu Xiao told reporters that Russia’s crude oil exported to Europe mainly passes through the Druzhba oil pipeline, with a pipeline transportation capacity of 1.4 million barrels / day.
If the crisis in Ukraine further intensifies and develops into a local war, there is a risk of closure of the Druzhba south line.
\u3000\u3000 “In extreme cases, Russian oil exports may be interrupted. However, we think it will mainly affect the crude oil exports in western Russia, that is, through Europe, about 2.2 million barrels per day. Due to the insufficient idle capacity of OPEC + and the limited export capacity of the United States, it is difficult to find alternatives to Russian crude oil in the market, and the global oil market will be in an extremely tight supply situation, At that time, the oil price is expected to exceed $120. ” Fu Xiao said.
Local war is not a probability event, but this uncertainty coincides with the rising demand for crude oil and insufficient idle capacity, which will undoubtedly greatly increase the volatility of crude oil. At present, the management fund is also constantly raising oil prices, and the proportion of short and long crude oil has dropped to 16%, which is the lowest level since mid October last year. At the same time, some traders mentioned to reporters that frequent supply interruptions deepened the forward discount structure (stronger near-end prices) and strengthened the monthly profit of bulls, providing further support for oil prices.
high oil prices make the “inflation tiger” more difficult to fight
High oil price expectations may make it more difficult for the central bank to fight the “inflation tiger” this time.
This week, the US CPI data will be released soon. Traders will keep up their spirits and pay attention to the clues about whether the Fed raised interest rates by 25 basis points (BP) or 50 BP in March. “If the CPI is stronger than the expected 7.3%, the Fed may have reason to raise interest rates by 50 basis points in March.” Joe Perry, senior analyst of Jiasheng group, told reporters. Last December, US inflation hit a 40 year high of 7%. At present, Goldman Sachs expects the fed to raise interest rates five times throughout the year, and quantitative tightening (QT) will start in the second half of the year.
The impact of rising oil prices on oil upstream and downstream industries has also attracted much attention. Generally speaking, companies with upstream oil and gas resources will significantly benefit from this round of continuous rise in oil prices. For example, the largest three barrels of oil ( Petrochina Company Limited(601857) , China Petroleum & Chemical Corporation(600028) and CNOOC, of which CNOOC’s upstream business accounts for the largest proportion and benefits the most), as well as some private enterprises with oil and gas field assets, such as Guanghui Energy Co.Ltd(600256) .
Huatai futures said that taking PetroChina as an example, the gross profit of its exploration and production sector basically shows a high convergence trend with the crude oil price. Through simple calculation, the correlation coefficient between the two can be as high as 0.98 from 2011 to 2020. However, there is no obvious correlation between crude oil price and refining gross profit. It is even estimated that the correlation coefficient of Sinopec in the past 10 years is -0.86, which is obviously contrary to our intuitive cognition. However, if we separate several points in the extremely high oil price range (higher than $80 / barrel), we can see that when the oil price is in the normal range of $40 ~ 80 / barrel, there is a certain positive correlation between refining profit and oil price (0.52); When the oil price is above $80 / barrel, there is an obvious negative correlation between oil price and refining gross profit (- 0.48).
Fluctuations in oil prices also have varying degrees of impact on the chemical industry. In the first half of 2021, the yield of petrochemical industry was nearly 12%, which was better than the whole market, ranking 30th among 109 secondary sub industries. “For example, varieties such as asphalt fuel oil directly fall with the oil price, but varieties containing other raw materials such as methanol and ethylene glycol have more influencing factors.” A futures trader mentioned to reporters. In addition, petrochemicals and coal chemicals are considered to be substitutes, so coal chemicals tend to be better when oil prices rise.
