As the COVID-19 epidemic spread globally in 2020, international oil prices plummeted, and the benchmark price of WTI crude oil futures once fell to negative values. In 2021, as the global economy recovers, the epidemic is under control, and inflation expectations continue to rise, international oil prices have also recovered rapidly, and have remained stable above US$70/barrel since June.
The reason why oil prices can perform like this is that some market participants believe that in addition to the fundamentals of the crude oil market, it is also related to the recent sales of U.S. shale oil developers. Related to hedging positions.
At the same time, the epidemic in the United States is likely to come back again. 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 soared further, with more than 74,000 new cases in a single day, a new high since mid-April. And it was the highest record in the world that day.
The number of new confirmed cases of COVID-19 in the United States in a single day rose from 11,300 on June 23 to 74,000 on July 16. In three weeks, It increased more than 5 times in a short period of time. In the past week, the number of new cases of COVID-19 has increased in all 50 states and Washington, D.C., with the current seven-day average of 26,300 new cases. This is an increase of about 70% from last week’s seven-day average, with 38 states experiencing growth rates exceeding 50%.
Yesterday, OPEC representatives said significant progress had been made in breaking the deadlock with the United Arab Emirates. The online ministerial meeting is scheduled to be held at 12pm local time today (6pm Beijing time tonight). However, a representative warned that not every minister had confirmed their attendance. Ministers from Saudi Arabia, Kuwait, the United Arab Emirates and Oman met online yesterday to discuss the issue, representatives said. The representatives spoke on condition of anonymity because the information has not yet been made public.
U.S. shale oil developers have lost US$7.5 billion in hedging futures positions and may lose US$20 billion in the second half of the year
According to data released by market research firm IHS Markit, as many U.S. shale oil drillers sold hedging near US$55/barrel this year, as oil prices exceeded US$70/barrel, now Their hedged futures positions suffered losses of approximately US$7.5 billion in the first half of the year alone.
IHS Markit said that if oil prices remain at US$75/barrel in the second half of the year, U.S. shale oil drillers will suffer losses from selling hedging in the second half of the year. It will be expanded to US$12.5 billion, which means the total loss of the futures positions they hedged this year is as high as approximately US$20 billion.
It is understood that, unlike other bulk commodity raw material companies, U.S. shale oil producers will hedge future output in order to successfully obtain bank loans. Hedging operations. Li Yunxu, senior analyst at SDIC Essence Futures, told Futures Daily that hedging future production has become one of the necessary conditions for shale oil producers to obtain bank loans. After all, shale oil producers have high debts and banks need them. Do hedging in advance to ensure future profits.
Because of this, the hedging model of U.S. shale oil producers has been very mature, and the hedging ratio is mostly concentrated between 30% and 90%. And usually part of this year’s hedging operations has been completed in the previous year. This year, with the rise in international oil prices, the futures hedging positions that have been sold are bound to have floating losses. However, considering that the hedging points of shale oil producers are usually at a price that can cover the full cost, coupled with the mining The overall activity is profitable, “so 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.” Li Yunxu said.
The operating conditions of U.S. shale oil companies depend on many factors, Li Wanying, senior energy and chemical analyst at Donghai Futures, added, including upstream investment and financing, mining Exploration expenditures, etc. Last year, due to the impact of the epidemic, related companies suffered heavy losses. After comprehensively analyzing the characteristics of the shale oil industry chain and the potential risks of the oil market, funds have been relatively cautious in investing in shale oil companies this year, which has indirectly affected the exploration and development of companies. Invest.
An Ziwei, senior analyst at Orient Securities Derivatives Research Institute, agreed. According to her understanding, after the sharp fluctuations in oil prices, shale oil producers were generally cautious about the increase in oil prices this year in the fourth quarter of last year. Therefore, they still increased the hedging amount for crude oil production in 2021 even when oil prices showed a certain rebound trend. 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 will also suffer losses on the hedging futures side. According to calculations, the average price of hedging positions of U.S. shale oil producers in the first quarter was nearly $10/barrel lower than the WTI price.
However, the new crown epidemic has prompted U.S. shale oil producers to accelerate capital expenditures, maintain stable free cash flow, improve balance sheets and realize investor returns. Becoming a new target for shale oil producers. A large number of hedging positions in the bullish oil price market will not only prevent producers from fully enjoying the dividends of rising oil prices, but will also affect producers’ free cash flow. Under such circumstances, market participants generally believe that relevant companies will reduce their hedging amounts in order to obtain all the dividends brought by the bull market and ensure that they hold more liquid cash.
It is precisely because of this that in the past periodAt that time, some market participants said that many hedge funds continued to chase crude oil futures when U.S. bond yields continued to fall and inflation ebbed, precisely because they firmly believed that as shale oil drillers sold hedging positions, oil prices would rise. will receive stronger support.
However, Li Yunxu believes that there is no direct connection between the two. Selling hedging positions generally closes the exposure as production is completed and sales are closed. I have not heard of any shareholders publicly stating that they would reduce the scale of hedging. After all, hedging is theoretically crucial for shareholders to obtain stable profits. At the same time, judging from the short positions of the CFTC industry, the number of short positions in the CFTC industry dropped from 760,483 to 711,456 in the week of June 27. In the following two weeks, positions were increased, while short positions in SWAP (to a certain extent, shale oil producers use third parties The amount of value of derivative instruments) is relatively stable. Therefore, Li Yunxu said that it is difficult to link the reduction of hedging scale with the oil price breakthrough.
Future oil market transactions are full of uncertainty
In fact, in Li Yunxu’s view, The reason why the net long positions of crude oil futures options announced by the CFTC have recently changed significantly is mainly because the demand logic has been continuously traded for a long time, and there is limited room for follow-up imagination. The supply side has seen a significant increase in recent disturbances, and long funds have become increasingly cautious. , profit-taking is in line with the current market background.
She Jianyue agreed with this. In his view, with the “unhappy” OPEC+ meeting in July, the market’s trading logic has shifted from deterministic trading in the past to uncertainty trading. Hedge funds and others will naturally make corresponding operations on relevant positions based on their own judgment. The “unhappy ending” of the OPEC+ meeting essentially means that there are differences within OPEC. Although there is news recently that Saudi Arabia and the United Arab Emirates have reached a consensus on the upper limit of production cuts, it also means that to a certain extent, the period when Saudi Arabia was “one word” in the OPEC organization has passed. In addition, there will still be great uncertainties in US-Iran relations, the epidemic, etc. in the future. The main trading logic of the international crude oil market in the second half of the year will be market uncertainty.
Specifically, “If the OPEC+ meeting reaches Saudi Arabia’s proposal to increase production by 400,000 barrels per day per month from August to December, then this quarter’s The supply and demand gap is at a level of 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, which will undoubtedly continue to benefit oil prices. However, due to the sudden request by the United Arab Emirates to adjust production cuts base (increased by 700,000 barrels per day), resulting in the July meeting of OPEC+ ending inconclusively. The market is worried that internal strife in OPEC will trigger a price war. From the perspective of the current abundant production capacity of oil-producing countries, supply will exceed demand and supply will exceed demand in an instant. Another important factor affecting the supply side is U.S. shale oil. This year, shareholders have emphasized returns and lacked investment, resulting in a weak recovery in production. The biggest uncertainty is Iran, whether its crude oil production can return to the market (1-1.5 million barrels/day increase) still depends on the long-term battle between the United States and Iran. On the demand side, developed countries have gradually approached full opening-up thanks to the popularization of vaccines. Therefore, the oil price trend in the second half of the year is basically in the hands of OPEC+.” She Jianyue said.
Li Yunxu partially agreed with this. In his view, although the fundamental data in the third quarter will confirm the marginal increase in crude oil demand and the continued reduction of inventories, from the historical cycle, the inventory inflection point does not necessarily correspond exactly to the price inflection point. The current oil price has entered the high range after the shale oil revolution and OPEC+ has sufficient idle production capacity. The demand-side data is eye-catching but cannot exceed expectations, and the potential risks on the supply side are relatively high. High-level oscillation is more likely to be the model for oil prices in the second half of the year. . “The recent high volatility may have been a preview of supply risks. In a market environment where fear of high prices has emerged and there are relatively few positive surprises beyond expectations, there is still room for correction. However, we need to pay attention to the negative impact of OPEC+ members once again speaking out to support prices after continuous declines. feedback effect”.
Specifically regarding quarterly performance, An Ziwei believes that global vaccine popularity and seasonal growth mean that demand is still expected to maintain growth momentum in the third quarter, but the fourth quarter may Faced with the risk of a pullback. On the supply side, OPEC+ and the United States still have a lot of room for recovery. OPEC+ is expected to maintain the general direction of gradual growth. The United States has a relatively low potential to increase production in the third quarter, and oil prices are expected to maintain a strong upward drive in the third quarter. In the fourth quarter, it is expected that differences will gradually emerge, changes in the margins of supply and demand may turn, and the upward drive of oil prices will weaken.
</p
