Key investment points:
WTI crude oil price fluctuates more recently
Recently, due to the conflict between Russia and Ukraine, the impact of the epidemic, the Iranian nuclear negotiations and other factors, crude oil prices have fluctuated sharply. As one of the most important bulk commodities, the price trend of crude oil affects the global inflation level, monetary policy and economic recovery. Therefore, it is particularly important to judge the trend of oil price. At the beginning of the epidemic in early 2020, WTI oil price once fell to near minus $40 / barrel. This time, under the joint action of multiple factors, we believe that WTI oil price may usher in large fluctuations again.
Three reasons behind the sharp price fluctuations
1) low level of Cushing inventory: an important factor affecting WTI crude oil price is Cushing inventory. According to the latest data, Cushing's inventory in the United States as of March 18 was only 25.24 million barrels, which has fallen to a four-year low, close to the previous low in 2018 and 2014, and decreased by 12.07 million barrels or 32% from 37.31 million barrels at the beginning of the year. And considering that a large part of these inventories may be used for mixed operation and pipeline transportation, the quantity that can be used for delivery will be more limited, which will bring greater uncertainty to the futures market.
2) US oil may have limited capacity to increase production: since 2013, affected by the decline of oil price, the capital expenditure of major US shale oil enterprises has continued to decline, from US $300 billion in 2013 to US $116.2 billion in 2021, a decrease of more than 60%. Rystad energy expects us shale oil capital expenditure to increase by 19% in 2022. However, considering the low base in the early stage and the rise of service prices, this growth rate is not high. At the same time, since the rise of oil price in the Permian Basin, the main source of shale oil in the United States, in July 2020, the number of inventory wells has continuously decreased from 8828 at that time to 4372 in February 2022, with a decrease of 50%. The corresponding Permian crude oil production has increased by only 680000 barrels / day, which is 780000 barrels / day less than the peak of 9.27 million barrels / day at the end of 2019 before the epidemic, which means that if the capital expenditure is not significantly increased immediately in the future, Even if the remaining inventory wells are consumed, they may not be able to return to their past production.
3) WTI crude oil futures trading structure is special: WTI crude oil futures delivery varieties are highly concentrated in the region, and the delivery rules are special, which makes its price easy to fluctuate sharply. When the current supply-demand mismatch, low inventory, geographical disturbance and other multiple factors are superimposed, this fluctuation may be further amplified, which will increase the risk of relevant futures positions and trigger violent fluctuations in the share prices of related companies, which is worthy of high vigilance.
Conclusion: WTI oil price fluctuation intensifies or continues
Under the influence of the above factors, the price fluctuation of WTI may further intensify, and the price difference with Brent may narrow; However, two-thirds of the world's crude oil is mainly priced based on Brent. The fluctuation of WTI crude oil does not necessarily lead to the fluctuation of global oil price.
Risk tips
1) easing of the conflict between Russia and Ukraine; 2) The progress of Iran's nuclear negotiations exceeded expectations; 3) The epidemic has led to a decline in global demand; 4) US oil production increased more than expected; 5) OPEC + unexpected expansion.
