At the beginning of the month, there were disagreements in the negotiations between the UAE and OPEC. Since then, the international crude oil price, which has been “passing through all the hurdles”, has begun to hesitate. We believe that the future trend of crude oil still depends on the output of oil-producing countries, while the supply side depends on how OPEC handles the UAE’s demands and how the United States treats Iran and Venezuela’s return to the crude oil supply market.
Figure 1: Daily chart of crude oil futures
The UAE’s demands are very “tricky”
On the evening of July 15, market news said that OPEC+ sources said that Saudi Arabia and the United Arab Emirates reached an agreement on oil production, and WTI crude oil futures “dived” in the short term. Although the UAE later denied that OPEC+ had agreed to increase production, crude oil fell. The trend remains unchanged. Judging from the news from all parties, differences within OPEC+ and OPEC are increasing, and oil-producing countries are slowly entering chaos, which may trigger a new round of oil price turmoil.
Referring to our previous views, as an oil-producing country, the UAE does not intend to suppress oil prices. Because the UAE’s market share is low and all production capacity is not mobilized to compete with Saudi Arabia and Russia, the country’s basis for launching a “price war” also does not exist. We still believe that the UAE’s motive is as simple as wanting to increase its own production.
The UAE’s position can be said to be true to its word. The country insists on raising the benchmark for the UAE from an average of 600,000 per day. barrels to an average of 3.8 million barrels per day in a bid to allow them to “unilaterally increase production” under the current quota framework. The UAE said it has decided to “endure” this benchmark if the agreement expires in April 2022, but if the agreement is extended to By the end of 2022, this benchmark will no longer be acceptable.
Although the problem is simple in the eyes of the UAE, it is “tricky” in the eyes of OPEC. If it does not agree to the UAE’s request, OPEC will be unable to reach a consensus. Otherwise, it may cause other oil-producing countries to follow suit. Objectively speaking, global demand for crude oil is rising, but it is undeniable that oil-producing countries are operating at full capacity and supply is still in excess. Saudi Arabia agrees to other oil-producing countries adjusting their benchmarks, which is equivalent to giving up its own market share.
Yesterday’s speech by an OPEC representative further confirmed our inference. He said that Iraq is also seeking to increase the OPEC+ production baseline , but it is not yet known what Iraq’s specific demands are. Therefore, the UAE’s approach is not destructive, but it is highly demonstrative. If oil-producing countries follow suit, it will undoubtedly be a heavy blow to oil prices.
There is a high probability that Iran’s production capacity will be released
Look again, Iran and Venezuela’s production capacity return. Whether the crude oil of the two countries can return to the supply market ultimately depends on the level of inflation in the United States. U.S. inflation data has surged for three consecutive months, and the statement that inflation is temporary has been falsified, but Powell is still calming market sentiment.
Yesterday, Powell testified before Congress that the U.S. job market is nowhere near where the Fed wants to see before reducing support for the economy. Progress is “still some way off” and the current high inflation will ease “in the coming months”. The economic recovery has not progressed far enough to begin reducing the central bank’s monthly asset purchases. He also reiterated that the Fed is ready to take action if inflation expectations rise significantly.
In fact, all market participants know very well that the Fed is not worried about inflation because the United States has sufficient capabilities. To control inflation, analysis of U.S. inflation data reveals that U.S. CPI is mainly driven by rising prices for energy, food, and used cars, all of which can be controlled by the United States. This article focuses more on the regulation of energy prices.
Previously, there was a view that rising wages would have a spiraling effect on inflation. Ordinary residents in the United States have higher expectations for wages, which has driven up commodity prices, and crude oil is certainly inevitable. However, as long as it is a commodity, it will be affected by supply and demand. As long as supply continues to exceed demand, commodity price increases will be difficult to sustain. As long as the United States relaxes restrictions on Iran and Venezuela, crude oil supply will immediately become looser. Judging from the current situation, it is only a matter of time before the production capacity of the two countries is put into the market.
EIA gasoline inventories unexpectedly increase
It has to be said that the overnight market was indeed quite “busy”. The EIA crude oil inventory data that was supposed to be released at 22:30 was unexpectedly delayed by an hour. In response, the EIA official explained that there was a technical problem.
U.S. EIA crude oil inventory data shows that EIA crude oil inventory changes in the week ending July 9 actually announced a decrease of 7.896 million barrels. , expected to decrease by 4 million barrels, compared with a decrease of 6.866 million barrels from the previous value. Specifically, EIA gasoline inventories actually increased by 1.038 million barrels in the week ending July 9, which was expected to decrease by 2 million barrels, and the previous value decreased by 6.075 million barrels; U.S. EIA refined oil inventories actually increased by 365.7 million barrels in the week ending July 9. million barrels, expected to increase by 1 million barrels, and the previous value increased by 1.616 million barrels. The increase in gasoline inventories has become the focus of attention this time.
Figure 2: EIA inventory data
In fact, for a long time, gasoline inventories have been decreasing, while refined oil inventories have increased. For an optimistic market environment, all negatives can be ignored, and conversely, all positives can be equally easily ignored. EIA data also follows this principle. This year, the crude oil market has been optimistic, and no one cares about it even if refined oil inventories are increasing most of the time. Once sentiment changes, negative news and gasoline stocks that have been ignored in the past will be taken seriously.
In general, differences in opinions among oil-producing countries coupled with expectations of increased supply, crude oil continues to The upside space is relatively limited. </p
