Crude oil “brake” and some chemical products “fall behind”

Following the consecutive surge, the crude oil market has recently recovered, with the main domestic crude oil futures contracts falling by 4.73% on February 26. The sharp drop in oil prices also dragged down futures prices of fuel oil, asphalt and PTA. Analysts said that the comments made by President Trump on oil prices and Russia’s weak capacity to cut production were all a drag on the trend of oil prices. It is expected that the short-term oil price will maintain the trend of recovery, but the medium and long-term is still expected to oscillate upward.

Crude oil futures plummeted

Domestic crude oil futures fell sharply on the 26th, with the main 1904 contract closing at 427.5 yuan/barrel, a new low since February 12, closing at 433.1 yuan/barrel, down 4.73%. Fuel oil futures fell sharply with the main 1905 contract closing at 2808 yuan/ton, down 3.7%. Asphalt futures main 1906 contract closing at 3210 yuan/ton, down 1.17%. PTA futures main 1905 contract closing at 6406 yuan/ton, down 1.11%.

Li Lei, a chemical researcher at Meyer Futures, said that on the evening of the 25th, US President Trump issued a tweet calling for OPEC to ease production cuts. Affected by this, crude oil futures prices fell sharply, and fuel oil, asphalt and other futures varieties also fell to varying degrees. Tian Yujia, a chemical analyst at Dongwu Futures, added that Russia’s weak capacity to reduce production also poses a drag on the crude oil market.

From a deeper point of view, Li Lei believes that “Trump’s statement is only the cause of the lower oil price, and the two factors of the increase of U.S. commercial crude oil stocks for five consecutive weeks and the weakening of the monthly difference in crude oil contracts are the internal causes of the change of oil prices from rising to falling.”

Short-term fear of continued callback

“The future crude oil market fundamentals will be dominated by three factors: OPEC production reduction, U.S. shale oil production increase and weak demand.” Li Lei said that OPEC maintained a high level of production reduction, combined with instability in Libya and Venezuela, and the first half of OPEC production reduction will provide support for oil prices. Although shale oil production in the United States has maintained a low growth rate recently due to pipeline constraints, it is expected to accelerate in the second half of the year as pipelines are gradually put into operation, which will have an impact on the crude oil market. In addition, the slowdown of global economic growth may also affect the prospects of crude oil demand. Some institutions have lowered their expectations of crude oil demand growth in 2019, putting long-term pressure on the oil market.

Tian Yuejia said that due to the rapid growth of shale oil production, the production of light oil soared, and the current U.S. gasoline inventory is at the top of the historical range, the U.S. crude oil market focuses on the process of product oil de inventory. Brent crude oil market needs to pay attention to the reduction of Saudi Arabia and Russia. If Saudi Arabia maintains low production, the crude oil supply will have a gap when the peak consumption season comes.

For the future market, Tian Yujia said that the short-term crude oil prices will maintain a pullback trend. However, in the medium and long term, the contradiction between supply and demand of light and heavy oil may be difficult to solve, and crude oil can still be used as a multi-head configuration.

Li Lei also said that although OPEC production cuts provide power for oil prices to rise, because of weakening expectations on demand side and increasing production of shale oil in the United States, production cuts have not been smoothly transmitted to the inventory side, so the U.S. commercial crude oil stocks have increased for five consecutive weeks, and it is expected that short-term oil prices will maintain a retracement trend, but the long-term upward trend is still expected to remain volatile. In terms of operation, under the background of short-term weakness of crude oil, chemical futures, such as asphalt and PTA futures, which have high correlation with oil prices and weak fundamentals, will face downward pressure and can be short-term allocation.