In 2021, as the global economy recovered, the epidemic was under control, inflation expectations continued to rise, and international oil prices also recovered rapidly, and have remained stable at over US$70 per barrel since June.

The new crown epidemic spread globally in 2020, international oil prices plummeted, and the benchmark WTI crude oil futures price once fell to negative values. In 2021, as the global economy recovered, the epidemic was under control, inflation expectations continued to rise, and international oil prices also recovered rapidly, and have remained stable at over US$70 per barrel since June.

oil prices have such performance, some market participants believe that in addition to being related to the fundamentals of the crude oil market, it is also related to the recent selling of hedging positions by US shale oil developers.

At the same time, the epidemic in the United States is on the rise. On July 15, the number of new cases in the United States reached 39,014, the highest since mid-May; on July 16, the number further soared, with more than 74,000 new cases per day, setting a new high since mid-April and the highest record in the world that day.

The number of new confirmed cases of the new crown in the United States rose from 11,300 on June 23 to 74,000 on July 16, more than five times in three weeks. In the past week, the number of new cases of new cases of new coronavirus in 50 states in the United States and , Washington, DC, has been increasing, with an average of 26,300 new cases in seven days. That's about 70% higher than last week's seven-day average, with 38 states growing at more than 50%.

Yesterday, OPEC representatives said that significant progress has been made in breaking through the deadlock with UAE . The online ministerial meeting is scheduled to be held at 12 pm local time today (6 pm Beijing time tonight). However, a representative warned that not every minister had confirmed attendance. The delegates said that the ministers of Saudi , Kuwait , UAE and Oman held an online meeting yesterday to discuss the issue. Since the information has not been disclosed, the representatives requested not to be named.

US shale oil developers hedged futures position has lost US$7.5 billion, and may lose US$20 billion in the second half of the year

According to data released by market research firm IHS Markit, since many US shale oil exploiters sold hedging around US$55/barrel this year, as oil prices exceeded US$70/barrel, their hedged futures position has suffered losses of approximately US$7.5 billion in the first half of the year.

IHS Markit said that if oil prices remain at the price level of $75 per barrel in the second half of the year, the losses of selling hedging heads by US shale oil producers in the second half of the year will expand to $12.5 billion, that is, the total loss of their hedged futures end positions this year is as high as about $20 billion.

It is understood that unlike the raw material companies of other commodities, in order to successfully borrow from banks, American shale oil producers will hedge their future output. Hedging future output has become one of the necessary conditions for shale oil developers to obtain bank loans. After all, shale oil producers are in high debt, and banks need them to hedge in advance to ensure future profits.

Because of this, the hedging model of US shale oil producers is very mature, and the hedging ratio is mostly concentrated between 30% and 90%, and part of the hedging operations of this year have usually been completed in the previous year. This year, with the rise in international oil prices, the futures hedging positions that have been sold will inevitably suffer some losses. However, considering that the hedging points of shale oil producers are usually at prices that can cover the full cost, and the overall mining activities are profitable, recent financial reports show that with the rise in oil prices, the profitability of independent oil and gas producers in the United States has improved significantly compared with last year.

The operating conditions of American shale oil companies depend on many factors, including upstream investment and financing, mining and exploration expenditures, etc. Last year, under the influence of the epidemic, relevant companies suffered huge losses. After comprehensively analyzing the characteristics of the shale oil industry chain and the potential risks in the oil market, the investment actions of shale oil companies this year were relatively cautious, which indirectly affected the company's exploration and development investment.

In this regard, after a sharp fluctuation in oil prices, shale oil producers generally had cautious expectations for the increase in oil prices this year in the fourth quarter of last year. Therefore, when oil prices showed a certain rebound trend, the hedging amount of crude oil production in 2021 was still increased.Relevant data shows that in the fourth quarter of last year, the overall proportion of listed producers hedging crude oil production in 2021 was roughly 45%. Therefore, when oil prices continue to rise this year, producers also suffered losses in the hedging futures side. According to estimates, the average price of hedging positions of US shale oil producers in the first quarter was nearly US$10 per barrel lower than the WTI price.

However, the COVID-19 pandemic has prompted US shale oil producers to speed up their capital expenditures, maintaining stable free cash flow, improving balance sheet and cashing in investor returns have become new goals for shale oil producers. A large number of hedging positions will not only prevent producers from fully enjoying the dividends of the continued rise in oil prices in the bull market, but will also affect producers' free cash flow. In this case, market participants generally believe that relevant companies will reduce their hedging limits to obtain all the dividends brought by the bull market in the market and ensure that they hold more liquid cash.

It is precisely because of this. Over the past period of time, market insiders have said that many hedge funds have chosen to continue to chase crude oil futures when the yield on US bond continues to decline, causing inflation to fall. It is precisely because they firmly believe that as shale oil developers sell hedging positions, oil prices will gain stronger support. There is no direct connection between the two. Selling hedging positions generally settles exposure with the completion of production and sales closing of positions. It is not heard that shareholders publicly stated that they have reduced the scale of hedging. After all, in theory, hedging is crucial for shareholders to obtain stable profits. At the same time, judging from the short positions in the CFTC industry, the week of June 27 dropped from 760483 lots to 711456 lots, and the following two weeks increased positions, while the short positions in SWAP (to a certain extent of shale oil manufacturers retained their value through third-party derivatives) was relatively stable. Therefore, it is difficult to link the reduction in hedging scale with oil price breakthroughs.

The future oil market trading is full of uncertainty

In fact, the reason why the net long position of crude oil futures options released by the CFTC recently has undergone a major change, mainly because the demand logic has been continuously traded for a long time, the subsequent imagination space is limited, the recent disturbances on the supply side have increased significantly, long funds are becoming more cautious, and profit-taking is in line with the current market background.

In this regard, in his opinion, with the July OPEC+ meeting "end of bad luck", the market's trading logic has changed from the past certainty transactions to uncertain transactions. Hedge funds and other hedge funds will naturally conduct corresponding operations on their relevant positions based on their own judgment. The OPEC+ meeting ended in an unhappy manner, which essentially means that there are differences within OPEC. Although there have been reports recently that Saudi Arabia and the UAE have reached a consensus on the upper limit of production cuts, it also means to a certain extent that in the past OPEC organization, the period of Saudi Arabia's "one-man rule" has passed. In addition, in the future, there will still be great uncertainties in the US-Iran relations and the epidemic, etc., and the logic of the main transactions in the international crude oil market in the second half of the year will be market uncertainty.

Specifically, if the OPEC+ meeting reaches the Saudi-proposed monthly increase of 400,000 barrels per day from August to December, the supply and demand gap in this quarter will be 1 million to 2 million barrels per day. In the fourth quarter, without considering the return of Iranian crude oil to the market, the subsequent supply and demand gap will further expand. , undoubtedly continues to be beneficial to oil prices. However, because Aliya suddenly proposed to adjust the production cut base (up to 700,000 barrels per day), OPEC+'s July meeting ended in fruitless. The market is worried that OPEC's internal strife has triggered a price war. From the perspective of the rich production capacity of oil-producing countries, it is a blink of an eye. Another important influencing factor on the supply side is US shale oil. Since the beginning of this year, the lack of investment has led to weak production recovery due to shareholders' emphasis on returns. The biggest uncertainty factor is Iran, and whether its crude oil production can return to the market (1 million to 1.5 million barrels per day increment) still depends on the long struggle between the United States and Iran. On the demand side, developed countries have gradually approached full opening due to the popularization of vaccines. Therefore, the oil price trend in the second half of the year is basically controlled by OPEC+.

In this regard, although the fundamental data in the third quarter will confirm the marginal rise in crude oil demand and the continued sales of inventory, from the historical cycle, the inventory turning point does not necessarily correspond to the price turning point. The current oil price has entered the high range after the shale oil revolution and OPEC+ idle production capacity is sufficient. In the context of impressive data on the demand side but not exceeding expectations, and the potential risks on the supply side are too large, high oscillation is more likely to be the model of oil prices interpreting in the second half of the year. The recent high fluctuations may have been a preview of supply risks. There is still room for imagination for the market environment where the fear of highs is revealed and the relatively poor behavior exceeds expectations. However, we need to pay attention to the negative feedback effect of OPEC+ member states reiterating prices after the continuous decline.

Specifically for the quarterly performance, global vaccine popularity and seasonal growth make demand still expected to maintain growth momentum in the third quarter, but may face the risk of a decline in the fourth quarter. On the supply side, OPEC+ and the United States still have a lot of room for recovery. OPEC+ is expected to maintain a general direction of gradual growth. The United States has a low relative potential for production increase in the third quarter, and oil prices are expected to remain strong upward-driven in the third quarter. Differences are expected to gradually emerge in the fourth quarter, marginal changes in both supply and demand may turn, and the upward oil price will weaken.