Thanks to the initiative of OPEC oil producers led by Saudi Arabia to reduce production more than expected, coupled with the slowdown of production growth in the United States, the crude oil market has been strong in recent years. Since April, the focus of crude oil futures prices at home and abroad has obviously moved up. Among them, WTI crude oil rose from $60 to $63.49 a barrel, the highest since November 2018, Brent crude oil also stood on the platform of $70 a barrel from below $68 a barrel. Domestic crude oil contract 1905 also showed strong performance, rising from 455 yuan per barrel to 480 yuan per barrel.
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Improvement of liquidity expectations
In order to boost the economy, US President Trump has urged the Federal Reserve to cut interest rates again and publicly recommended the re-adoption of quantitative easing in the financial crisis. There are signs that Trump will intervene in the future direction of the Fed’s monetary policy by nominating two candidates who agree with him as Fed governors. At the same time, the Federal Reserve and its own economic slowdown, the world’s major central banks will further consolidate the tone of easing. Liquidity expectations were loose, confidence in global commodity markets increased, and risk appetite in crude oil markets rebounded significantly.
OPEC’s implementation of output reduction exceeded expectations
Since the beginning of the year, the biggest driver of the rebound in crude oil prices is the reduction of production in oil-producing countries. Until now, this favorable factor is still fermenting and will not be exhausted in the short term. From the implementation of the quarterly reduction, the overall level is higher than expected. According to a survey released by Prussian Energy Information, output in OPEC member countries fell by 570,000 barrels per day in March from a year earlier to 30.23 million barrels per day. The implementation rate of output reduction reached 124% in 11 member countries, up from 79% in February. Among them, Saudi Arabia’s excess production reduction. Data show that Saudi Arabia’s output fell by 280,000 barrels a day to 9.87 million barrels a day, the lowest since February 2017.
Although Venezuela, Iran and Libya have been exempted from the implementation of the reduction agreements, for their own reasons, the three countries are in a passive state of production reduction. Venezuela is in the dilemma of massive blackouts in the face of U.S. sanctions, forcing the shutdown of heavy oil production facilities in Venezuela. Data show that Venezuela’s output fell to 740,000 barrels a day in March. At present, Iran’s output is relatively stable, with crude oil production of 2.69 million barrels per day in March, and by the end of the U.S. sanctions exemption period, crude oil production may decline substantially.
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US output growth slowed down
For a long time, the sharp growth of shale oil production in the United States has not only occupied the market share of OPEC oil-producing countries, but also weakened the profit atmosphere created by OPEC member countries’efforts to reduce production, and become the biggest negative factor in the oil market. Recently, however, the number of active drilling rigs in the United States has declined. In the week ending April 5, 831 seats were the lowest since May 2018.
In view of the decrease in the number of active drilling rigs, the leading indicator of U.S. crude oil production, the U.S. government has reduced its forecast for crude oil production growth from 1.45 million barrels per day to 1.35 million barrels per day, while its output is expected to be 12.3 million barrels per day. The slowdown in U.S. crude oil production growth is conducive to boosting market enthusiasm. Fund position data show that as of April 2, WTI crude oil non-commercial net multi-position volume was 481361, the eighth consecutive week of increase, and is the largest since mid-October 2018.
Overall, the global market is still in a tight supply situation in the second quarter. With the improvement of the macro atmosphere, the focus of crude oil prices will rise further.
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