First, OPEC+ reduces production. On October 5, OPEC+ announced that it would start to cut production by 2 million barrels per day in November. Considering that most OPEC+ countries have less than the quota, the actual production cut is about 1 million barrels per day.
Secondly, the United States sells reserves. After OPEC+'s sharp production cuts, the United States quickly stated that it would continue to release its strategic crude oil reserves, with 10 million barrels in November and 15 million barrels in December. It is concerned about whether the United States will add additional additional investments in the future. If the United States adjusts the SPR supply volume month by month, it will form an hedge against OPEC+'s production cuts , partially weakening the support of OPEC+'s production cuts on oil prices.
Finally, Russia, since the second half of the year, the United States has continued to push for the setting of a price ceiling for oil exports to Russia to replace the sanctions issued by the EU html in early June on the Russian oil embargo. The price ceiling discussed in early July is $40-60/barrel, and the price ceiling discussed this week is $60/barrel. If the price ceiling plan is implemented, it is equivalent to lifting the crude oil embargo sanctions. At this time, observe Russia's attitude. If Russia does not export to countries that implement the price ceiling, the rate of Russian crude oil decline may exceed expectations, which will benefit oil prices.
crude oil demand side continues to decline, and it is highly certain. Taking the United States as an example, the US ZEW economic prosperity index in October was -45.6, and the previous value was -39.6. The total number of existing home sales in the United States recorded an annualized 4.71 million households, the lowest since May 2020, and the longest consecutive month decline since 2007. U.S. bond 10-year and 3-month yield curves have been inverted for the first time since early March 2020; Bloomberg data shows that the market expects the probability of a U.S. economic recession in the next 12 months is close to 100%. At the same time, since the peak summer transportation season, U.S. gasoline consumption has continued to fall short of expectations, and the pressure on U.S. crude oil demand is increasing. Overall, the downward trend of oil prices has continued since June 10. The United States sells reserves and hedges OPEC+ production cuts, the US and European economy continues to weaken, and the crude oil demand side continues to face pressure under the pressure of recession. OPEC+ cuts production and implements expectations management , and oil prices are gradually falling in a resistant and step-by-step manner. The strong resistance zone above the oil cloth is 100-110 USD/barrel.
In the short term, we believe that Brent oil may exceed $100/barrel, but the probability of impacting $120/barrel is relatively low. The main pressure faced by the crude oil market comes from the continued weakening of crude oil demand under the expectation of an economic recession. Oil prices hit US$120 per barrel and require a larger decline in the supply side than expected. For example, the following conditions are met: OPEC+ once again cuts production beyond expectations on the basis of large-scale production cuts in October, the United States' weak selling of reserves and the Russian crude oil production declines beyond expectations.
Author: Nanhua Futures Consulting Service Department Liu Shunchang Z0016872
Statement: The content and views of this report are for learning and reference only and do not constitute any investment advice. The market is risky, so be cautious when investing.
