Author: Shi Xuan Source: China Chemical Industry News October 21, 2019

On October 9, Turkish President Erdogan announced a military operation codenamed \"\"Peace Fountain\"\" in northern Syria; OPEC approved an increase in Nigeria’s crude oil production target under the production reduction agreement to 1.774 million barrels per day, which was previously 1.685 million barrels per day; a large-scale riot in Iraq, OPEC's second-largest oil producer; in the early hours of October 11, local time in Tehran, an Iranian tanker named SABITI exploded in the Red Sea and caused crude oil to leak...International The situation is turbulent, and the international crude oil market is also changing rapidly. Experts in the industry believe that the market has both long-term and short-term concerns.

Oil market operating pressure

In September, oil-producing countries maintained stable production cuts to support the bottom of the price, while the US crude oil industry data was favorable throughout the cycle and also played an important role. U.S. crude oil and refined oil inventories continued to decline under the influence of consumption peaks, and the number of active oil drilling by Baker Hughes also recorded a long-term decline, which formed benign support for crude oil price levels.

However, macro worries are still lingering. The economic recession is concerned about long-term pressure on the risky market. The volatile trade situation between China and the United States has further pushed down the economic downside risks, which put greater pressure on crude oil prices. In particular, the rumor that the US government intends to relax sanctions on Iran has caused the market to worry about rising crude oil supply. At the same time, major energy agencies at this stage have all lowered the growth rate of long-term demand for oil, which has also caused a continuous decline in crude oil prices.

Saudi Arabia’s own huge reserve reserves have guaranteed the external supply of raw materials, and the damaged production capacity is recovering at a faster-than-expected rate, and the U.S. crude oil and refined oil inventories have turned from falling to rising. Economic doubts have returned to the market. However, the price center is still higher than the previous month.

Increased market volatility

Although the expansion of US crude oil and the risk premium crowding out will affect the market in the short term, the impact of the Saudi attack in the next few weeks is difficult to completely eliminate, and the geopolitical risk premium in the Middle East will stabilize within a certain range.

At present, the results of the high-level Sino-US economic and trade consultations will have a significant impact on the international crude oil market. Some experts predict that Sino-US trade negotiations may not be able to reach a comprehensive agreement in October, but it is very likely that some favorable results will occur, which will also help to further repair the risk sentiment of the crude oil market decline.

In addition, Europe's restart of QE and the Federal Reserve's interest rate cuts have triggered global economic easing to hedge downward pressure on the economy. More importantly, the fundamentals of crude oil supply and demand have not shown significant signs of deterioration, and global crude oil inventories are still on the low side. In addition, the approach of the IMO 2020 deadline is also conducive to improving the competitiveness of high-spec oil, which will form a certain support for the operation of oil prices.

However, according to official data released by the US Energy Information Administration (EIA), as of the week of September 20, US crude oil production was 12.5 million barrels per day, returning to the highest level on August 23. Previously, from the end of August to mid-September, US crude oil production has remained at 12.4 million barrels per day. US crude oil imports averaged 6.4 million barrels per day, down 672,000 barrels from the previous week. Over the past 5 weeks, US crude oil imports averaged 6.8 million barrels per day, a decrease of 13.1% from the same period last year.

With the release of US crude oil pipeline transportation capacity, its export scale will expand, which will challenge the current energy system. At the same time, OPEC quietly adjusted the production agreement to allow Nigeria to increase the output ceiling. Although the exchange of fire between Turkey and Syria has increased the uncertainty in the Middle East, supply expansion has put greater pressure on crude oil prices, and the Sino-US trade negotiations have affected market nerves. The crude oil market may show a high-frequency shock in a complex situation.

Long-term risks remain

Recently, the US Energy Information Administration sharply lowered its oil price forecast early next year. The agency believes that increasing uncertainties in economic and oil demand growth have offset the risk of supply disruption following the attack on Saudi oil facilities.

The US Energy Information Administration said in its short-term energy outlook in October that with the expected increase in global oil inventories in the first half of 2020, it is expected that downward pressure will appear on oil prices in the coming months.

U.S. crude oil production in 2019 is expected to increase by 1.27 million barrels/day, reaching a record 12.26 million barrels/day, slightly higher than the previously expected increase of 1.25 million barrels/day; U.S. crude oil production is expected to increase by 910,000 barrels/day in 2020 , Reached 13.17 million barrels/day; previously expected to grow 990,000 barrels/day to 13.23 million barrels/day. At the same time, as oil production in the Gulf of Mexico rises and oil pipelines in the Permian Basin begin to deliver more oil to the Texas Gulf Coast, the growth rate of oil production in the United States in the fourth quarter will increase.

As a result, the US Energy Information Administration raised its forecast for US crude oil production in 2019 and lowered its forecast for US and global oil demand.

Not only that, as Ecuador seeks to increase revenue in crude oil sales, Ecuador, one of the smallest member countries of the Organization of Petroleum Exporting Countries (OPEC), will withdraw from OPEC in January next year.

Ecuador has been seeking to increase crude oil production, so Ecuador has not complied with OPEC’s production quotas, and the daily output of crude oil in the past year is about 530,000 barrels. Although the country's share in the crude oil market is small, it also increases the uncertainty of the international crude oil market.