Since March, oil prices have soared like a rocket.
First, the Organization of the Petroleum Exporting Countries (OPEC) continued to use “sources” to predict the market during open and closed meetings, and then the Houthi rebels supported by Iran launched an attack on Saudi Arabia’s oil capital. The air strikes targeted local oil facilities of Saudi Aramco, the world’s largest oil giant.
Spurred by dual news, Brent crude oil (Brent oil) broke through the $70 mark on March 8, while U.S. crude oil (U.S. oil) also Driven by this, it soared to around $70. Although both Brent oil and U.S. oil have subsequently fallen, a number of major international banks are bullish on oil prices. Goldman Sachs believes that it is not a dream for Brent oil to exceed US$75 in the second quarter.
The current surge in oil has also added fuel to global inflation expectations.
On March 10, according to economic data released by the National Bureau of Statistics of China, China’s industrial producer price index (PPI) data continued to rise in February, reaching 1.7%. This is a further sharp rise after the PPI in January turned from negative growth to positive after 11 months.
(Picture source: Huitong Finance Network)
If this fire of inflation is burning, for What is the impact on domestic companies?
Don’t worry too much about “imported inflation”
Although many people think that inflation is invisible and intangible, when entering the traditional “gold, three, silver and four” Chinese textile export companies in the peak season have been the first to feel the changes.
“It’s bitter! The price of polyester fabrics has gone crazy.” Li Wen (pseudonym), the business manager of a listed foreign trade home furnishing company in Jiangsu Province, said in an interview with reporters on March 9.
Because polyester fiber uses ethylene refined from petroleum as raw material, the upstream raw material for petroleum has skyrocketed, causing downstream Chinese textile export companies to suffer.
(Picture source: Xi Dechuang Electric Technology)
But even so, the textile foreign trade industry can only grit its teeth and dare not increase prices.
“The current batch of orders from foreign trade companies are at the price set last year, and it is almost impossible to change the price now.” Li Wen further explained that since textile supplies are seasonal products, they are usually the same price as the previous year. Samples are developed and sent to customers in September, prices are set in December, and orders are placed in February of the following year for shipment in June. “So talking about price increases now will cause all prices in the entire chain to move, and many customers would rather cancel their orders.”
The rise in industrial raw material prices is also reflected in China’s PPI On the data.
But rising PPI is not necessarily a good thing. Zhou Maohua, a macro analyst at the Financial Market Department of China Everbright Bank, said in an interview with reporters on March 9 that although the PPI turning positive indicates that the overall operating conditions of domestic enterprises have improved, more and more enterprises are getting rid of the “price reduction promotion” situation. But not all companies will benefit. Some companies that use commodities as intermediate inputs will see rising costs and profits will be eroded.
Such changes have caused many brokerage analysts to mention “imported inflation” in recent days, that is, rising foreign prices drive up domestic prices. Does China need to worry about “imported inflation”?
In this regard, Zhou Maohua believes that we need to be vigilant, but there is no need to worry too much. He gave three reasons: First, with the transformation of China’s economic structure, the international balance of payments has tended to be balanced, and the initiative of domestic monetary policy has increased significantly; second, judging from China’s inflation structure in recent years, pork and food prices have caused The main factor of price fluctuations is that African swine fever is currently under control and the tight supply and demand for pork continues to ease; thirdly, the transmission of domestic PPI to CPI (Consumer Price Index) is not smooth. From a data point of view, China’s February CPI data fell by 0.2% year-on-year, which is inconsistent with the upward trend of PPI. At the same time, China’s industrial structure and consumption upgrading are still in the process of rebalancing.
On the whole, although the risk of “imported inflation” is controllable for China at this stage, Zhou Maohua also said that the recent rise in international crude oil and other commodities is bound to further push up China’s PPI.
Under the pressure of rising PPI, some even called “stagflation is coming.” Ren Zeping, chief economist of Evergrande Group, released a report on March 1, saying, “China’s economic cycle is shifting from recovery to overheating and stagflation, with rising inflation expectations and structural asset price bubbles. We may be standing in a cycle of broad liquidity. At the sexual turning point.”
Expert: High oil prices are difficult to maintain
After analyzing the impact of inflation on China, let’s return to the eye of the storm of this round of inflation, the “king of commodities” “–crude.
A Texas oil pumping unit under the setting sun. (Source: Associated Press)
According to the latest estimates from the International Energy Agency (IEA), global crude oil demand may not catch up with supply until around the third quarter of 2021. JPMorgan Chase has previously stated that the price of Brent crude oil futures contracts is about two quarters ahead of the actual selling price and 4 US dollars higher than the fundamental price. Physical crude oil is not easy to sell.
At the same time, the three countries with the most say in global crude oil production (the United States, Saudi Arabia and RussiaRoss), the United States under Biden does not seem to welcome high oil prices.
In this regard, Chen Weidong, former chief researcher of the CNOOC Energy Economic Research Institute and director of the People’s Republic of China Research Institute, said in an interview with a reporter from Times Weekly on the 9th: “For the United States, high oil prices are good for the United States. Shale oil companies, but are detrimental to the overall economic recovery and people’s livelihood of the United States.”
Chen Weidong also pointed out that unlike the Trump period, Biden will not Call Saudi Crown Prince Salman Jr. and Russian President Vladimir Putin directly.
It is worth noting that former US President Trump historically made Saudi Arabia the first country he visited in person after taking office. However, the United States under Biden has chosen to actively distance itself from Saudi Arabia. When he first took office, Biden made it clear that U.S.-Saudi relations would be different from the past. He also reiterated the murder of Khashoggi in 2018 and declared that the United States would hold Saudi Arabia accountable for human rights violations.
As to how the turbulent situation in the Middle East will affect future oil price trends, Chen Weidong believes that maintaining oil prices at 50-60 US dollars per barrel is the most acceptable price for various countries. The long-term price is 70 US dollars per barrel. The possibility is very small. “The United States is resuming peace talks with Iran. Once the talks are concluded, once Iran’s inventory for so many years is released, the global crude oil market will definitely be affected. Even if OPEC+ takes control, it is difficult to deny the possibility that Russia will abandon OPEC+ and increase production on its own. “
Coincidentally, many analysts have pointed out that unless there are new changes, the probability of further rises in oil prices in the short term seems to have declined.
Judging from the news, Zhang Jingjing, co-chief analyst of GF Macroeconomics, believes that as far as the year is concerned, investors have bought two “expectations” for oil prices to rise, that is, both demand recovery and supply contraction are bullish. . Secondly, oil prices are no longer sensitive to the renewed destruction of Saudi facilities on March 7. Firstly, because the recent attacks did not cause substantial damage to Saudi Arabia’s oil production capacity; secondly, crude oil prices have fully reflected the current multiple bullish trends. factor.
Based on past experience, the Houthi attacks in 2019 caused Saudi Aramco’s production capacity to be halved, equivalent to 5% of global crude oil supply. Brent Oil and U.S. Oil both surged 9% that day, but oil prices continued to rise. Within weeks it was back to pre-attack levels.
In addition, from a fundamental analysis, Zhou Maohua believes that it is expected that oil prices will have little room to rise significantly in the future, because the price performance of some commodities has deviated from physical fundamentals.
Chen Weidong also said, “The current high oil prices are determined by subjective factors of various oil-producing countries, rather than the objective supply of global crude oil.” In addition, he also pointed out that the Texas cold wave and Houthi attacks are only short-term factors. “Major countries around the world are already on the road to carbon neutrality, and the era of oil prices having a profound impact on inflation has passed.”</p
