Oil prices in domestic and international markets plunged sharply from 2 a.m. on April 27, and then continued to weaken throughout the day. Oil prices continued to fall sharply during the European trading period starting at 4 p.m. WTI and Brent markets fell more than $4 from intraday highs. The decline of 6% in one day was a crash. Oil prices totally reversed their rise in the last week. Technologically, it constitutes a typical phased form of roofing. Domestic INE crude oil futures have withdrawn most of their gains this week, although they have significantly increased compared with the external market, showing a relatively resilient performance.
When oil prices fell sharply for the first time, market investors sought a reasonable explanation. Then Trump told reporters on Friday that he had called OPEC to ask it to lower the price of crude oil, but did not say who he was talking to. After this information, oil prices continued to fall rapidly. The market generally believed that this remark was the trigger of the sharp fall in oil prices on Friday night. But in the early morning, the media said that the Secretary-General of OPEC, the Crown Prince of Saudi Arabia and the Minister had not talked with him before oil prices were able to recover from the sharp fall and shrink slightly. However, oil prices still hit the biggest one-day decline in a year all over the world.
The sharp drop in oil prices and the soaring news show that investors are hesitant about future market expectations and unstable mindset under the combination of increased Iranian sanctions and OPEC production expectations. In fact, from April 22, when the United States announced that it would terminate Iran’s sanctions exemption on May 2, oil prices took another step. After the U.S. oil broke through $66/barrel and the oil distribution reached $75/barrel, the majority of investors’long expectations in the market had been fully released. The market showed that once there was a loosening of investors’ initiative to flee long positions, they were very active and profitable. The shift of multi-air power has become a natural thrust for the fall in oil prices.
Oil price has formed a stage-high pattern
If not for the 26 th drop, crude oil prices were in a booming situation throughout April, and the three benchmark oil prices showed a trend of substantial growth, of which SC price benefited from OPEC + production reduction, the biggest increase this month.
From the seasonal point of view, the seasonal inflection point usually occurs in May-June. Prices usually keep rising until then. This year’s crude oil price trend is basically similar to seasonal trend, but in absolute range significantly exceeded seasonal trend. In addition to the seasonal support of the fundamentals, this year’s fundamentals speculation has also fully overlapped the impact of OPEC + production cuts and the withdrawal of Iranian and Venezuelan production capacity. These combined factors have amplified the seasonal trend of crude oil, but at present it seems that the probability of oil prices peaking at inflection point has greatly increased.
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Logically, the supply-side story has completely dominated the price trend, and the demand level has been completely forgotten by the market. Therefore, whether we analyze the historical market or judge the future market, we still need to grasp the core of the market – supply.
Analyzing the historical situation, the supply-side stories mainly focus on two aspects: one is the high implementation rate of OPEC + production reduction; the other is the decline of production in Iran and Venezuela under U.S. sanctions. To judge the future market, the supply side should pay attention to three aspects: first, whether the United States blockades Iran or its export exemption and whether Iran will react excessively; second, whether OPEC + will increase production to compensate for the withdrawal of Iran’s production capacity in accordance with the U.S. plan; and third, the U.S. crude oil production.
On the implementation rate of OPEC + production reduction, the latest OPEC monthly report shows that Saudi crude oil production in March was 9.794 million barrels per day, up from 10.087 million barrels per day. Saudi crude oil production fell by 324,000 barrels a day in March. Saudi Arabia’s confidence in such a firm cut was unexpected. 9.8 million barrels per day of crude oil production was also on schedule. Brent also lived up to Saudi expectations and once again broke through the pressure level above. All along, Saudi Arabia and its firm attitude show that Saudi Arabia is making every effort to rebalance the oil market. Although Saudi Arabia knows that shale oil is stealing its share, and that Saudi Arabia’s efforts are ultimately to make a wedding dress for shale oil, Saudi Arabia can’t do both as part of the interests of the United States and as part of its own demand for high oil prices at home. Yes. So the result is that the tightening of the physical market will continue.
On the Iranian issue, with the news that Iran’s exports are about to be completely blocked by the United States, crude oil prices have soared, and Brent and WTI have made significant breakthroughs. Now the Trump government has offered a plan to negotiate with Saudi Arabia and the United Arab Emirates to increase production to fill market gaps. In our previous report analysis, we pointed out that Trump and Saudi Arabia have different target prices, and the current oil price is close to Saudi Arabia’s target price, so Saudi Arabia will probably make up for Iran’s vacancy according to the U.S. plan. In this case, if Saudi Arabia increases production, the contradictions between other oil-producing countries will arise, following Saudi Arabia’s example to increase production or probability events. Russia is one of the most unswerving links. The implementation rate of OPEC + Production Reduction Alliance will decline dramatically in the foreseeable future. So the current market focus is on the next step of OPEC + action. If Saudi Arabia remains firmly determined to cut production, then the feast of bulls will continue. If the U.S. plan is accepted by OPEC + then the direction may change.
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The supply side also needs to pay close attention to U.S. crude oil production. American crude oil production has been hovering around 12 million barrels for a long time because of the low price of crude oil in the previous period. However, with the recent price rising to a high level, American crude oil production should show signs of recovery. Although the global supply is shrinking under the influence of American political means, American crude oil just took advantage of this opportunity to quickly occupy the market. 。 If U.S. crude oil production increases substantially again, then U.S. crude oil overcapacity will spill over sufficiently.
In addition, on the demand side, behind the sharp rise in oil prices, we also see the shortcomings of the range of product oil follow-up. Whether in Singapore, the United States, Europe or China, the price gap of product oil cracking has declined to varying degrees. The price gap of American diesel oil cracking has declined to a relatively low level, and the situation in China is worse than that in any other region, whether gasoline or diesel oil. Prices are showing signs of fatigue, although crude oil prices remain strong, but China’s refined oil prices did not follow. In this case, we have been doubting how long the demand will last under high oil prices. Although gasoline cracking in other areas is still relatively good, the main reason is that the fund spends a lot of real gold and silver on the price of gasoline!
According to the position data, the report released by the Commodity Futures Trading Commission (CFTC) on Friday (April 26) shows that the bullish crude oil will continue to heat up in the week ending April 17 to April 23, with a net long speculative crude oil increase of 32101 contracts to 547 359 contracts.
But on Friday, from the three major crude oil futures market movements, the bulls’departure continued to be obvious, especially the domestic INE crude oil futures which can see the changes of the market positions immediately. Within 24 hours, the capital positions were reduced by more than 10,000 hands, with the reduction rate approaching 15%, indicating the strong willingness of the bulls to leave the market. Although the international crude oil futures can not see the changes of the market positions in time, it is obvious from the perspective of the international crude oil futures market. Looking at the face-to-face action, the bull resistance is obviously insufficient, which indicates that market confidence and expectations have begun to change significantly.
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To sum up, crude oil prices are now moving towards a cooling-off period after the crazy transition. Whether it is Brent’s monthly difference or the net long position of gasoline futures, after the crude oil market has achieved its best performance in more than 10 years under the impetus of multiple interest and multi-resonance, the oil price has ushered in an important turning point. In the next 5-6 months, the market will pay attention to the change of OPEC+in the action of reducing production. In June, the market will focus on the change of OPEC+in the action of reducing production The probability of the OPEC meeting will reach an agreement to reduce the implementation rate of production cuts, when market capacity will be released to a certain extent, and is usually expected to be released in advance of the price.
In short, at the current price level, the momentum for the market to continue to rise has been exhausted, and the periodic high of oil prices has probably occurred. Whether it is a decline of $5-10 on one side or an interval crossing above an integer level, adjustments should not be absent. Therefore, in strategy, we can pay attention to Brent short-selling opportunities in the near and far monthly difference, and customers who hold multiple positions should pay attention to controlling market risk.
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