At the end of the year, the international oil price is on the strong side

(1) Price performance: On Friday (December 23), international oil prices rose, and expectations of a decline in Russian crude oil supplies helped offset concerns about a hit to growth in demand for transportation fuels in the United States. Russian oil exports from the Baltic Sea in December may have fallen by 20% from the previous month. Russia may cut oil production by 5%-7% in early 2023.

(2) Focus on:

This week, the United States and Europe entered the Christmas holidays, and the trading volume fell to the lowest level in the year, and crude oil prices rebounded slightly. Putin said that next week he may sign a response decree on the price cap, but the specific content has not yet been clarified, so we need to keep an eye on it.

1. Pay attention to the recovery rhythm of Chinese demand. In November, the crude oil processing volume of China's refineries increased by 1.7% month-on-month, and the export volume of refined oil products hit a new high this year, partly offsetting the weak domestic demand caused by the epidemic. Year-to-date refinery processing volume/crude oil imports cumulative year-on-year -4.7%/-1.5%. Recently, the epidemic has broken out across the country. Although the epidemic prevention policy continues to be relaxed, the recovery of travel and consumption is still slow. At present, it seems that it is still difficult to make a big improvement before the Spring Festival. After the peak of this round of epidemic is over, China's demand may become an important source of incremental global oil product demand.

2. Ross crude oil exports fell short-term. Last week, Russia exported 1.6 million barrels per day of crude oil by sea, a sharp decrease of about 1.86 million barrels per day compared with the previous week. The four-week average is 2.73 million barrels per day, of which about 2.53 million barrels per day are exported to Asia, and only Bulgaria, which is exempt from sanctions, is exported to Europe. On the one hand, the decrease in exports comes from the seasonal maintenance of the Baltic ports, and on the other hand, from the short-term adjustment of the price ceiling of the Asian ports. Despite certain temporary factors, exports may pick up this week. However, in the future, it is not ruled out that Russia will use EU sanctions as an excuse to reduce crude oil supply along the way.

3. The United States launched a strategic inventory repurchase. On October 20, Biden announced the repurchase of strategic reserve stocks when the oil price was 67-72 US dollars per barrel. Afterwards, on December 7, WT1 touched $72/barrel for the first time. On December 16, the U.S. Department of Energy announced the launch of the first batch of 3 million barrels of inventory repurchase, which will be officially delivered in February. If it can be implemented continuously in the future, it will provide strong support for oil prices.

(3) Oil price outlook:

1. The triple pressure in the early stage led to a downward trend in oil prices.

1) The high incidence of the epidemic has frustrated the expectation of boosting demand for oil products in China in winter. Since November, the epidemic in China has heated up, and the number of infections has hit the highest level since 2020. Although the epidemic prevention policy continues to be relaxed, the grim reality keeps traffic travel at a low level.

2) The expected reduction in Russian oil supply fell through. In the fourth quarter, Russia's crude oil production continued to rise, and oil product exports remained high.

3) The year-to-date transactions were light, and the total open interest fell to a low level. Since the global economy peaked in the second quarter of 2021, crude oil futures positions have continued to fall to eight-year lows, showing that financial institutions are cautious about crude oil allocation in the context of a weakening macro environment.

2. In the later stage, pay attention to the three supporting factors below.

1) The most direct short-term support comes from the US launching strategic crude oil inventory repurchase. If it continues, it will provide strong support for TI at $70.

2) Recently, Putin has stated that he does not rule out considering cutting production; if oil prices continue to fall, pay attention to whether Russia will announce an active production cut.

3) OPEC will enter the production cut cycle again next year. If the implementation of the production reduction is relatively high, or the production reduction is further expanded, it will actually support the oil price from the supply side. This week the Saudi oil minister said OPEC should take proactive steps to defend oil prices amid concerns over weak demand. Overall, the demand pressure is down, and the supply support is up, and it may maintain a wide range of shocks in the medium term. In the early stage, it was in the downward band of the interval, and in the later stage, we should pay attention to the recovery band when the oil price fell to the lower boundary.