SunSirs: Weakening the Impact of Production Reduction & Poor Demand Prospects, Crude Oil Crashes

https://www.chemnet.com   Jun 15,2023 SunSirs

　　On June 12th local time, international crude oil futures closed lower. The settlement price of the main contract for WTI crude oil futures in the United States was $67.12 per barrel, a decrease of $3.05 or 4.3%. At the lowest point in nearly three months, the settlement price of Brent crude oil futures' main contract was at $71.84 per barrel, a decrease of $2.95 or 3.9%. As the Federal Reserve's interest rate meeting approached, Goldman Sachs lowered its oil price forecast, further strengthening concerns on the demand side.

　　This week, the government will hold a two-day policy meeting. Although market participants generally expect the possibility of maintaining interest rates unchanged to be high, based on the high level of inflation, the market expects the Federal Reserve to resume interest rate hikes in July. The pressure of a stronger US dollar in the medium term still exists, which puts pressure on US dollar denominated commodities and risky assets, creating a bearish outlook on oil prices at the macro level.

　　On the news front, last Sunday, Goldman Sachs lowered its oil price forecast, believing that the oil supply from the end of this year to 2024 will be higher than expected. And the Brent crude oil forecast for December was revised down from $95 to $86 per barrel, while the US WTI crude oil was revised down from $89 to $81 per barrel. Goldman Sachs stated that Russia's crude oil production remains resilient under Western sanctions. The bank's report pointed out that Iran and Russia's crude oil supply far exceeded expectations, and Goldman Sachs also raised production forecasts for Russia, Iran, and Venezuela for next year by 400,000, 350,000, and 50,000 barrels per day, respectively. The pessimism of supply expectations amplifies the bearish sentiment in the market, especially in the current uncertain demand outlook.

　　It is worth noting that last week, the OPEC+ production policy of oil producing countries once brought positive news to the market. The organization extended the previously agreed production reduction agreement from the end of 2023 to the end of 2024, especially Saudi Arabia, which added an additional 1 million barrels per day of production in July on the basis of the existing production reduction. At present, in the market atmosphere, investors are not buying it. Firstly, the OPEC+ production reduction has not deepened, and secondly, the production adjustment in distant months due to Saudi Arabia's additional production reduction has little impact on current oil prices.

　　In addition, the pressure on the demand side has not been lifted. Previously, the US government passed the Debt limit and budget bill to temporarily avoid its debt default. However, the employment data is mixed. Although the US non-farm data for May showed strong performance, the latest number of new jobless claims has jumped to the highest level since October 2021, leading to a shift in the labor market and an increased risk of economic recession. In addition, China's recently released economic data has also shown sluggish performance, with a poor outlook for global demand, and the oil market still facing significant pressure.

　　Inventory data also showed bearish performance, with data released by the US Energy Information Administration (EIA) last Wednesday showing an unexpected decline in US crude oil inventories, but an increase in US fuel inventories has raised concerns about market performance. The previous week, US gasoline inventories increased 2.7 million barrels to 218.82 million barrels, with market estimates indicating an increase of 880,000 barrels. That week, US distillate oil inventories increased 5.1 million barrels to 117.3 million barrels, with a market estimate of an increase of 1.3 million barrels.

　　SunSirs crude oil analysts believe that there has been significant pressure on the oil market in the near future. Although OPEC+ has shown a determination to support prices, and its policies have made adjustments in favor of oil prices while balancing the pros and cons, the pressure on oil prices from future macro pressures and economic downturn risks remains significant. The oil market may remain bearish in the near future, and investors need to pay attention to the results of the Federal Reserve's policy meeting in the near future.

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