Economics World November 3, 2024

Changes in global oil prices

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2024 is a tumultuous year. The Federal Reserve cuts interest rates to start a new easing cycle. Global geopolitical conflicts are frequent, and the unpredictable situation in the Middle East has an impulsive impact on global oil prices. The volatile production policies of “OPEC+” caused oil prices to fluctuate sharply. The Middle East, a major supplier of oil, is experiencing unprecedented geopolitical conflicts. Israel’s avoidance of attacking Iran’s crude oil or nuclear facilities has cooled tensions in the Middle East. The release of this geopolitical risk premium has led to an expected rise in oil market supply, which further led to a sharp fall in international oil prices: both Brent and WTI crude oil futures prices retreated significantly before recovering slightly. However, the risk of future geopolitical conflict in the Middle East is still likely to reignite, and the oil supply situation is more politically influenced, with a higher degree of uncertainty. On the demand side, the fundamentals of the global oil market are weak, and the increase in oil demand is lower than expected but still remains resilient. On the inventory side, the oil market inventory overall decline. The global oil market under the influence of multiple factors may continue to be volatile. In 2024, international oil prices will be volatile, with an overall “M”-shaped oscillating trend. According to China Petroleum Business Daily, the average price of Brent is around USD82/bbl, slightly lower than USD0.6/bbl year-on-year, with a fluctuation range of USD69-91/bbl; the average price of WTI is around USD77/bbl, slightly lower than USD0.8/bbl year-on-year; and the average price of Platts Dubai is around USD81/bbl, slightly lower than USD0.6/bbl year-on-year. On the geopolitical front, Israel’s decision to refrain from attacking Iran’s crude oil or nuclear facilities led to a significant plunge in international oil prices. on October 28, the prices of both Brent crude oil futures and WTI crude oil futures plummeted by more than 6%. The WTI crude oil futures even fell below the key price level of $70/barrel, down 6.13%, and finally closed at $67.38/barrel. This figure represents the largest one-day drop since July 12, 2022. on October 29, international oil prices recovered slightly, with WTI crude oil futures hovering around US$68/bbl and Brent crude oil futures close to US$71/bbl.

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Apart from the political changes in the Middle East in recent days, the macro environment in 2024 does not provide a stable backdrop for the global oil market. China Oil Business News has analyzed this stage by stage. From the beginning of this year to early April, the Red Sea crisis, the Ukraine crisis, and the Iraq-Israel crisis further raised geopolitical risks and further raised oil prices. in early April, Brent broke through the $91/bbl mark. from early April to early June, the easing of geopolitical conflicts in the Middle East and the weakening of expectations for interest rate cuts by the Federal Reserve triggered the market’s concern about oil demand, which in turn pulled down oil prices. During this period, Brent once fell below 78 U.S. dollars / barrel. early June to early July, “OPEC +” statement to dispel market concerns, so that the oil demand improved, and pulled up the price of oil. the end of June, the price of Brent back to 86 U.S. dollars / barrel. July to September, the U.S. and China’s two major economies of the economy and the expected demand for oil and the market’s concern about the global economic situation. The market’s concern about the global economic situation and the outlook for oil demand was triggered. At the same time, the market traded in advance of the “weak expectations” of the return of “OPEC+” production, which in turn caused the international oil price to fall back. since October, the situation in the Middle East has escalated rapidly, and the international oil price has retreated part of the geopolitical risk premium after consecutively rising. In the fourth quarter, China’s oil business newspaper predicted that the oil market may turn loose, the pressure on international oil prices. However, the Fed opened the interest rate cut cycle and higher geopolitical risk is still on the global oil market has the bottom support.

Last week’s crude oil futures market (10.24-10.30) showed an overall downward trend, with the average price falling YoY. CMEGroup’s analysis showed that negative factors dominated the market news this week. On the geopolitical front, investors’ concerns over the geopolitical situation in the Middle East were eased by Israel’s retaliatory attacks on oil facilities and Iran’s relatively restrained approach to Israeli retaliation. The fading geopolitical risk premium caused oil prices to fall under pressure. Iranian President Pezhezian said that Iran does not seek war but will respond appropriately to Israeli aggression. On the economic front, the downward eurozone economic outlook also added to the downward pressure on oil prices. The preliminary composite PMI for the eurozone rose to 49.7 in October, up from 49.6 in September, and was below 50 for the second consecutive month. “Business activity in the eurozone remains in contractionary territory.” CMEGroup analysis. In other major economies, the reduction in U.S. commercial crude oil inventories and refined product inventories had a positive impact on oil prices. Data from the U.S. Energy Information Administration (EIA) showed that U.S. commercial crude oil inventories increased by 515,000 barrels to 425.59 million barrels in the week ended October 25, 2024, while total U.S. gasoline inventories increased by 277,000 barrels to 210.868 million barrels, and distillate stockpiles increased by 977,000 barrels to 112.862 million barrels in the week ending October 25, 2024, compared to a week earlier. Data from China’s National Bureau of Statistics (NBS) showed that China’s crude oil production in September 2024 was 17.071 million tons, down 4.3% from a week earlier, and up 1.1% from a year earlier.China’s crude oil production in January-September 2024 totaled about 159.869 million tons, up 2.0% from a year earlier.

From a technical point of view, since October 2023, international oil prices have been in a “convergence triangle” pattern. The analysis of China Petroleum Business Daily shows that “Brent oil prices are suppressed by the upper trend line, and the stage highs are USD97/barrel, USD92/barrel, USD87/barrel, USD81/barrel, and the rebound height continues to move downward; the Brent K-line chart rebounded to the ‘converging triangle’ area again after testing the key support level of USD70/barrel for two times. Brent K-line chart rebounded to the “convergence triangle” area again after two tests of the key support level of 70 dollars / barrel. Combined with the Fibonacci forecast line, it is expected that the support level of Brent oil price in the fourth quarter will be $66.78/bbl, and the pressure level will be $82.48/bbl.”

On the demand side, the fundamentals of the global oil market are weaker. All three major energy agencies lowered their global oil demand expectations in their October monthly reports. OPEC projected global oil demand growth expectations for 2024 were lowered to an increase of 1.93 million barrels per day (mbpd) from 2.03 mbpd projected in September. At the same time OPEC also lowered its 2025 global demand growth forecast from 1.74 million b/d to 1.64 million b/d. The International Energy Agency (IEA) in October lowered its 2024 global oil demand growth forecast to 860,000 b/d from the original 900,000 b/d. At the same time, the IEA raised its 2025 global oil demand growth forecast to 1.0 million bpd from the original 950,000 bpd. This triggered negative sentiment in the crude oil market. At the same time, the crude oil market is affected by seasonality. November is still in the off-season for consumption, and global oil demand shows a shrinking trend compared with the peak season, which further affects crude oil prices. However, China’s 21st Century Newspaper analyzed that although the increase in crude oil demand has been revised downward, but in fact the demand is still on a growth track, “from the high frequency data, the current demand side of crude oil still exists a certain degree of toughness”. The market is still concerned about oil demand in Asia, but demand in Europe and the United States is still resilient. Data from the U.S. Energy Information Administration (EIA) showed that U.S. refinery crude inputs reached 16.084 million barrels per day (bpd) in the week ending Oct. 18, a five-year high for the same period. “Although U.S. crude oil inventories jumped by 5.474 million barrels from a year earlier, this was mainly due to an increase in crude oil imports, and U.S. diesel fuel inventories also plummeted by more than 1 million barrels” China 21 said. U.S. consumer confidence rose the most since March 2021 in October. The U.S. Bureau of Labor Statistics reported on November 1 that nonfarm payrolls increased by 12,000 last month. The Bureau of Labor Statistics indicated that it was not possible to quantify the net effect of the recent changes in U.S. employment, hours worked, or earnings as a result of the two hurricanes. The November 1 report from the Bureau of Labor Statistics also showed a sharp decline in manufacturing employment, largely reflecting strike activity in October. The last major economic report before the U.S. presidential election “is also expected to lead the Federal Reserve to cut interest rates next week as expected,” CITIC Futures analyzed. In Asia, the major economy of China’s oil demand trend lower, mainly due to its weaker-than-expected economic growth and the real estate crisis on the weakening of diesel demand has led to China’s lower fuel consumption this year. KRC Real Estate Research data showed that although China’s top 100 real estate companies’ sales manipulation in October increased by 7.1% year-on-year, achieving positive year-on-year growth in a single month of the year for the first time, the amount of residential mortgage loans in negative equity in Hong Kong reached HK$207.5 billion as of the end of September, the highest level in more than 20 years due to the continued downturn in the real estate market. Meanwhile, China is gradually shifting to electric vehicles on the automotive front, and its gasoline prices could peak this year or next. Meanwhile, CMEGroup analyzes that China’s demand for fuels like gasoline and diesel has or is about to peak, supported by the rapid electrification of China’s passenger cars, and that “orders for liquefied natural gas commercial vehicles in some parts of China’s trucking industry have also seen a sharp increase in recent months, paving the way for cleaner fuels.” CITIC Capital Futures reports that Bloomberg New Energy Finance’s analysis of Baidu data shows road congestion in China’s top 15 cities with the highest car ownership fell 11.9 percentage points in the seven days ended Oct. 30th. China’s independent refinery capacity utilization rate for refined products was 59.44% at normalized pressure in the week ended Oct. 31, down 1.47 percentage points from the previous week. East China, capacity utilization rate fell back. The main refineries’ normally-reduced pressure capacity utilization rate in this cycle was 74.78%, up 0.86% sequentially and down 4.59% year-on-year. As the world’s third largest oil importer and consumer, India’s demand for crude oil in the fourth quarter is likely to grow year-on-year. India’s oil ministry data earlier showed its September oil demand fell 1.6% year-on-year to the lowest level in two years. India is in the midst of the festival season and will increase agricultural activity after the monsoon season. As a result, S&P Global Commodity Insights forecasts that India’s crude demand will increase by 4% in the final quarter of the year. India’s gasoline and diesel demand is expected to increase by 50,000 to 55,000 barrels per day between November and December.

On the supply side, major oil-producing countries are increasing their crude oil production and exports.CMEGroup analysis says this is to gain more market share. “OPEC+” announced to increase production every month starting from December this year, and Libya’s oil production and export operations are back to normal. Bloomberg survey shows the Organization of the Petroleum Exporting Countries oil supply increased by 370,000 barrels in October to 29.9 million barrels per day. The increase was offset by production cuts in Iraq, Iran and Saudi Arabia. Libya restarted shuttered fields and export terminals and resumed oil production of 500,000 bpd to 1.03 million bpd. Iraq cut production by 90,000 barrels to 4.13 million barrels per day. Attempts by OPEC and its allies, led by Saudi Arabia and Russia, to reverse past supply constraints imposed to support crude oil prices were thwarted by deteriorating market conditions. Non-OPEC production continues to increase, with U.S., Canadian, and Brazilian crude oil production set to grow. Russian crude oil exports by sea continue to rise. Tanker tracking data showed that Russia exported an average of 3.47 million barrels per day (bpd) of crude oil in the four weeks ending October 20, up 140,000 bpd from the four-week average ending October 13th. The figure reached Russia’s highest level since late June. The country said the reason was that extensive overhauls at domestic refineries provided more crude available for export. China’s 21st Century Newspaper analyzed that there is little room for further significant downward adjustments in international crude oil prices and that there is weak sustainability, “The current global supply and demand situation is still within the realm of OPEC+ manageability, and there will not be a very significant oversupply.”

On the inventory front, analysis from CITIC Futures showed weekly de-stocking of both crude oil and refined products. Total U.S. oil inventories fell by 9.5 million barrels on a weekly basis in the week ended Oct. 23, with U.S. crude inventories down 0.5 million barrels and U.S. gasoline inventories down 2.7 million barrels.Vortexa data showed tanker capacity that was offline for at least seven days fell to 55.49 million barrels in the week ended Oct. 25, an 18% drop from the previous week’s figure of 67.8 million barrels.The weekly decline in U.S. gasoline inventories was a result of the decline in U.S. crude stocks, which were down 0.5 million barrels. Data from Dutch consultancy Insights Global showed diesel stocks at the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage centers fell 5.5% in the week ending October 31st. Gasoline stocks fell by almost 1%. Aviation fuel stocks fell by more than 9%. Data released by the Fujairah Oil Industrial Zone (FOIZ) showed a 1.5% increase in petroleum product inventories at the Port of Fujairah, UAE, in the week ended October 28th. Total stockpiles rose to the highest since September 16th. Analysis by CITIC Futures shows stocks have fallen 1.6% since the end of 2023, with only light distillate stocks rising over the year, “Stocks of middle distillates fell 16% in the latest week to a five-week low. Light distillates increased by 5.9% and heavy distillates by 3%.” Inventories of heavy distillates in Singapore fell by 4.791 million barrels to a six-year low in the week ended Oct. 29, according to data released by the Enterprise Singapore (ESG). Light distillate stocks decreased to a ten-month low. Middle distillate stocks increased to a three-week high.

The approaching U.S. election will also reveal the winner in the battle between new and old energy sources. Due to the temporary change of the Democratic Party’s presidential candidate, Trump and Harris only one TV debate failed to disclose their respective energy policies in detail. But both candidates’ energy policy preferences are still reflected in their various campaign activities. Former U.S. President and current Republican presidential candidate Donald Trump is a deserved “U.S. energy salesman”. Trump in his term of office in the White House website listed the priority to deal with the six “number one issue” in the first is “U.S. energy program”. He has insisted on continuing the shale oil revolution, advancing U.S. oil and liquefied natural gas exports and reducing foreign oil imports. Trump’s campaign has also affirmed Trump’s support for oil and gas development. His campaign has said that if Donald Trump wins another presidential election in November, the U.S. will once again withdraw from the Paris Climate Agreement. And during his last presidency, Trump had already led the U.S. withdrawal from the Paris Climate Agreement, calling it “a fraud on America.” Trump’s support for oil and gas production will provide a more convenient investment environment for the old energy giants. But CMEGroup analysis, the United States shale oil production cost curve decline slowed down, “the era of rapid growth in U.S. oil and gas production is basically over, even if Trump was elected, whether the U.S. oil industry can usher in the ‘spring’ through administrative means is still unknown. ”

Current vice president of the United States, the Democratic Party candidate Harris in order to fight for more votes, in the energy issue shows a swing attitude. Harris had taken promoting the clean energy revolution and consolidating U.S. leadership in global climate governance as his main policy positions. During Harris’ televised debate with Trump in September, Trump emphasized that Harris would ban fracking, “If she wins the election, fracking in Pennsylvania will end on day one. Harris will move to limit onshore oil and gas production in the United States and they will destroy our country again, oil will die, fossil fuels will die.” In the face of Trump’s accusations and the voters of Pennsylvania, a swing state with 19 electoral votes in hand, Harris has said she will not ban fracking “recognizing that we cannot afford to become overly reliant on foreign oil, and that the Biden-Harris administration has pushed for the largest increase in U.S. domestic oil production in history.” While her swinging attitude has confused many, her actions are a critical step in the election. Mike Summers, president and CEO of the American Petroleum Institute, has said he “must support fracking to be elected president in 2024.” Pennsylvania, one of the seven swing states, is “the heart of the U.S. natural gas industry.” Its total natural gas production is second only to Texas. Since the current polling numbers for both candidates are not that far apart, in order to get elected, politicians will need to adjust their energy positions to recognize fracking as part of the energy transition. If Harris wins, she will likely continue Biden’s energy policy ideas in the short term by not adopting substantive restrictions on traditional energy sources. But given her undercurrent as a clean energy supporter, the long-term growth in demand for conventional energy may be limited.

Changes in global oil prices

By Weifeng Sun

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