Saudi Arabia is restoring production capacity, the United States also said it would consider putting strategic reserves in the future, after the multi-factor is digested, under the influence of weakening consumption, futures prices will come down under pressure.
During the Mid-Autumn Festival, armed air strikes on two oil facilities in Saudi Arabia led to a re-crisis in the Middle East. Affected by this, crude oil futures prices at home and abroad fluctuated sharply last week. Among them, WTI oil prices in the United States once soared to $63.38 per barrel, and Brent oil prices rose back to $68.31 per barrel, the biggest one-day fluctuation in 28 years.
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It is no longer profitable to speculate about Saudi Arabia’s failure to supply
Yemen’s Hussein armed forces attacked two important oil production facilities in Saudi Arabia using UAVs, which belonged to the “black swan” incident in the market. The subsequent damage to Saudi output of 5.7 million barrels per day was digested in a one-time manner in the trend of international oil prices soaring in early Monday morning. In terms of follow-up development, in response to short-term global supply shortages, the Saudi energy minister said that Amy was trying to restore production, restoring 1.9 million barrels per day production on September 16, or one third of the reduction, and restoring the remaining two-thirds of the damaged production before the end of September. During the recovery period, Saudi Arabia will compensate its customers through existing reserves to ensure that global supply will not be interrupted. Despite the stabilizing elements of the above remarks, as the world’s largest oil producer, it has ample strength to convince most investors that it would be unprofitable to continue speculating about the disruption of Saudi Arabia’s supply. Perhaps some people think that the armed attack on Saudi Arabia by Yemen Hussein was in retaliation for its interference in the Yemeni civil war. At the same time, the figure of Iran shines behind the armed Hussein. The “proxy” war reflects the deepening political game between the United States and Iran in the Middle East, which means that similar incidents will happen in the future. However, the author believes that Saudi Arabia, which has experienced a painful lesson, will inevitably improve its defensive capability and prevent the occurrence of the second crisis.
The United States has more than one billion barrels of reserves
The U.S. crude oil reserves are divided into government strategic reserves and commercial reserves. As of the week ending September 13, 2019, the U.S. strategic reserves were about 645 million barrels, while commercial inventories exceeded 417 million barrels, totaling 1.062 billion barrels. It is understood that only the President of the United States has the right to use strategic reserves. Within 15 days after the announcement, strategic reserves of crude oil must enter the market with an output capacity of 4.1 million to 4.4 million barrels per day. Referring to the case of U.S. strategic reserve during the 1990-1991 Gulf War, the international crude oil price dropped from $36.73 per barrel to $18.35 per barrel in the context of the joint use of crude oil reserves by the United States and the International Energy Agency. At that time, it was not expected that the international oil price would rise sharply. After the attack on Saudi Arabia, US President Trump immediately said that he wanted to release strategic reserves and that the emergency response mechanism was more timely and accurate than the previous one. There is reason to believe that the top of this oil price rise will occur earlier than in 1990.
The market will enter the accumulation stage
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After the end of Labor Day in early September, the summer peak of driving oil in North America will also end, gasoline consumption will weaken, and refinery start-up rate will gradually decline. According to statistics, from 2014 to 2019, the start-up rate of refineries in the United States began to decline in early September, until the end of mid-October. In the week ending September 13, the start-up rate of refineries in the United States was 91.20%, with a 3.90% decrease in the circumference-to-circumference ratio. Although it was at a high level in the year, it had declined somewhat, with obvious seasonal regularity. At the same time, US commercial crude oil inventories are bottoming out at this stage of the year. From 2013 to 2019, U.S. commercial crude oil stocks reached the end in mid-September, then entered the accumulation stage, until the peak in mid-November. As of the week ending Sept. 13, US commercial crude oil stocks stood at 417 million barrels, down by 271 million barrels from the June 7 high, but above the six-year average. With the arrival of seasonal replenishment cycle, the accumulation of crude oil stocks is expected to increase.
To sum up, the attack in Saudi Arabia raised concerns about the shortage of crude oil supply. With Saudi Arabia’s recovery of damaged capacity as soon as possible and the expectation of the United States putting in reserves, the market recovered. Oil prices are facing the risk of sustained decline after the seasonal off-season of crude oil demand.
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