According to February 18 Investing.com A year ago, novel coronavirus pneumonia outbreak in the world, and the global oil demand situation is still unclear. However, some aspects of the oil market are now better understood. At present, it is crucial to break the impact of winter cold weather on oil production and refining in Texas, pay attention to the decisions that OPEC + may make at the meeting in two weeks, the reasons for the rise of U.S. oil prices and future oil demand.
First, the US oil supply was temporarily suspended.
Low temperatures in Texas led to a sharp drop in US crude oil production this week. According to the latest information, more than 4 million barrels per day of oil production capacity was forced to be interrupted, accounting for about 40% of the total U.S. oil production capacity. You know, under normal circumstances, Texas usually has 4.6 million barrels of oil per day.
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By contrast, in October last year, in response to Hurricane Delta, producers shut down about 92% of crude oil production in the Gulf of Mexico, or 1.68 million barrels per day. The temperature should improve in the near future, and the capacity interruption may last until next week, but if large-scale maintenance is needed, some capacity may be suspended for a longer time.
Most of the refining capacity in the Gulf of Mexico has been shut down due to similar climatic factors. At the beginning of this week, with the news that a large-scale shutdown may be coming and the oil price rising, the price of West Texas Intermediate oil finally broke through the $60 per barrel mark.
Prices rose another 1% on Wednesday as more information about the disruption became clear, but they will fall back as exploration and refining operations resume. Gasoline prices are also rising in the United States as refineries shut down. Gasoline prices in the Midwest, for example, rose about $0.05 a gallon on Wednesday.
Second, the decision of OPEC + on the production reduction agreement.
OPEC + member states are preparing to hold a meeting in two weeks and have begun to state their position to the media. According to the Wall Street Journal, Saudi Arabia will reduce its oil production by an additional 1 million barrels a day, which will last until the end of March.
Saudi Arabia will resume its supply quotas in April. This is Saudi Arabia’s position when it announced “additional production cuts” in January, so this message confirms that Saudi Arabia’s policy has not changed in the past few weeks.
On the other hand, OPEC + authorized Russia to increase production in February and March, but Russia has been unable to increase production due to unusually cold weather. Russia’s average production in February was 10.115 million B / D, down about 44000 B / D from January. However, higher temperatures in March may increase Russia’s oil production.
At the meeting on March 4, OPEC + will decide whether to continue to produce oil at its current level in April (Saudi Arabia will reduce production by an additional 1 million B / D), or to increase production due to higher oil prices. Russia said it believed the oil market was balanced, while Saudi Arabia expressed more cautious and moderate optimism about the current situation.
Third, fuel prices in the United States have risen.
Over the past month, the average price of a gallon of gasoline has risen by nearly $0.20, raising concerns that U.S. gasoline consumer prices will return to the previous high oil prices. The rise in gasoline prices may be related to the market tension caused by the country’s early administrative orders on oil and gas leasing and oil transportation.
However, these executive orders have not yet affected the fundamentals. The price rise is largely due to the tightening of fundamental factors unrelated to these policies.
Fourth, oil demand is still uncertain.
Short term oil demand in the US and Europe remains a big problem. Unless people are allowed to move around freely, children are allowed to return to school, and more workers are allowed to return to the office, gasoline consumption will not return to its previous level.
Many European countries have extended the blockade order to March or April, but in some countries, the legislature or the court is overturning the executive’s decision. In the United States, it’s not clear. Many school districts in the United States have not resumed full-time schooling, so many parents cannot leave home to return to work. It is hoped that full-time education will be restored in the autumn, but in the current situation, it is difficult to achieve.
In the long run, oil demand outside Europe and Asia is expected to grow. Traders should not forget that even if the short-term demand situation is questionable, the long-term demand situation can be determined.
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