Event:
In the context of the expected tightening of global oil and gas supply caused by the conflict between Russia and Ukraine, the United States announced the release of 1 million barrels of strategic reserve per day, which will release 1 / 3 of the strategic reserve stock in half a year, while OPEC + approved the plan to increase 432000 barrels per day of oil supply in May at its meeting on Thursday, which did not exceed the expected increase in production.
Key investment points:
OPEC + maintains the original rhythm of increasing production and has an obvious willingness to protect prices
After two years of epidemic impact, OPEC + urgently needs oil and gas export revenue to make up for the gap in national finance. Previously, OPEC + formulated a relatively conservative plan to moderately increase production. Its purpose is to maintain the oil price at a relatively high position, but not to eliminate the demand, so as to continuously transfuse the national finance. According to the agreement reached by OPEC + at the 19th ministerial meeting in July 2021, its total output will be increased by 400000 barrels per month from August of that year until the production reduction share of 5.8 million barrels per day reached in the production reduction agreement during the epidemic is gradually cancelled. The 27th ministerial meeting held by video on March 31 maintained the original plan of moderate production increase in May this year, increasing the output by only 430000 barrels / day. The oil producing countries have a strong willingness to maintain prices.
Differences between OPEC + and consumer countries on increasing production have become more open
OPEC + is obviously unwilling to respond to the appeal of the United States for increasing production this time, hoping to maintain high oil prices, which is objectively beneficial to Russia, reflecting the consistency of OPEC + internal interests, and the differences with the crude oil consuming countries represented by the United States on increasing production at the current time point are becoming more and more open. Another detail of the deepening differences is that OPEC + is considering abandoning the oil data provided by IEA (International Energy Agency). This small technological change reflects the open contradiction between OPEC + and IEA, which represents the interests of oil consuming countries: IEA previously played a key role in coordinating the release of emergency reserves, but its radical position on energy transformation and the idea of avoiding destructive climate change are deeply different from OPEC +.
The United States depresses oil prices for the purpose of suppressing inflation, but the short-term supply problem is difficult to solve
The United States announced that it would release 1 million barrels of strategic crude oil reserves every day in the next six months and 1 / 3 of the strategic reserve stock in half a year, reflecting the determination of the U.S. government to fight against the rise of oil prices (oil prices once fell 7% and WTI fell below $100). The approach of the mid-term election under high inflation has brought increasing pressure to the Biden government, prompting it to constantly call for increasing crude oil production outside China, and seek to release strategic reserves with consumer countries to drive down oil prices. In addition, the U.S. government threatened to recover the development rights of companies with insufficient investment on federal land, hoping to increase U.S. oil production in this way, but even if this strategy is successful, it will take months to be reflected in production. However, the low strategic reserve will in turn become the driving force to stimulate the rise of oil prices and oil hoarding. The six-month release period also reflects that the United States expects that the conflict between Russia and Ukraine will not ease in the short term. Therefore, the supply problem may be difficult to solve in the short term, and the supply of Russian oil and gas to the global market will be continuously affected.
Conclusion
We maintain our judgment on Brent’s high oil price and the risk that WTI’s oil price may fluctuate significantly in the next two months. Continued high oil prices will narrow the Fed’s policy options, and higher interest rates than expected will increase the downward pressure on stock market valuations.
Risk tips
1) unexpected 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
