At the end of the year, the transaction was light, and the oil price continued to be weak

(1) Price performance:

This week, U.S. crude oil fell again, falling by about 10%, the biggest drop since the week of April 1 this year. Brent oil also fell at the same time, a drop of about 10.20%. At the end of the year, the world's major economies were all slowing down, the demand outlook was impacted, and strong pessimism shrouded the market.

(2) Focus on:

At the end of the year, the thin transactions of funds leaving the market caused speculative demand to fall, and the severe epidemic situation in China and the economic pressure in the United States made physical demand weak. Demand pressure overwhelms supply support, and oil price sentiment remains weak. At present, WTl has gradually touched the US strategic reserve inventory purchase range, and attention will be paid to whether the US will start purchasing as planned.

1. The United States considers strategic inventory repurchases. Biden announced three measures on oil prices on October 20, including launching strategic reserve inventory buybacks when oil prices fall to $67-72 per barrel. This week WTI touched $72 a barrel for the first time since the measures were announced. In an interview yesterday, the US energy security consultant said that he would evaluate the pace of China's economic opening and the impact of Russia's price ceiling on supply, and consider whether to start inventory repurchases. If action is taken as planned, this price range will provide strong support for oil prices. If the United States does not honor its previous plan, it will invalidate the support price.

1. Russia considers setting a floor price. On December 2, the European Union announced the implementation of a price ceiling of US$60 per barrel for Russia. On December 5, the EU imposed sanctions on Russian oil exports. On December 6, the Deputy Prime Minister of Russia stated that he would consider implementing countermeasures against the EU price cap before the end of the year, and that he was ready to temporarily cut production if necessary. According to Russian officials, this could include floor price protection for crude oil exports, or a maximum discount rate limit.

1. OPEC continues to extend production cuts. On the evening of December 4, OPEC held a production meeting and decided to continue to extend production cuts. In November, OPEC fulfilled a substantial production cut of about 1 million barrels per day. If the production cut is extended, OPEC's production forecast for next year may be lowered. The meeting has just ended, and the short-term OPEC output quotas are unlikely to continue to be adjusted. On the one hand, it is concerned about whether OPEC will continue to reduce production in December after the sharp production cut in November. On the other hand, if the price of oil falls too much, will OPEC initiate an interim meeting to negotiate additional cuts in production?

(3) Oil price outlook:

Weak demand puts pressure on short-term oil prices.

1) The severe epidemic situation in China has caused road traffic flow to drop to the lowest value since the Spring Festival.

2) The U.S. Composite PMI dropped to 46.3 in November from the previous month. Recently, the demand for gasoline and diesel in the United States and the crack price difference have all dropped significantly.

3) The slowdown in crude oil purchase demand has weakened the oil price structure, and Saudi Arabia's official price of crude oil exports to Asia has been lowered to the lowest level since March.

4) The sluggish speculative sentiment continued to reduce the position of crude oil futures to the lowest level since 2015.

5) Under the influence of European and American Christmas holidays and year-end transaction settlement windows, market transactions may remain light, which amplifies price fluctuations.

Focus on the effectiveness of supply support in the medium term.

1) The United States announced the repurchase of strategic reserve stocks at a price of 68-72 US dollars per barrel. If it is realized, it will provide a clearer support price. Recently, the target price has been lowered, and attention should be paid to whether the procurement is implemented as planned.

2) Russia said it will launch a countermeasure against price caps before the end of the year. There are only three weeks left until the end of the year, so pay attention to the follow-up progress.

3) Whether OPEC will launch an interim meeting to further expand production cuts when oil prices plummet. If the above measures are implemented, they can provide support for oil prices. If it cannot be implemented, it will be difficult to hedge demand and oil price pressure.

Follow up:

1) Russia's response to EU sanctions. 2) China's demand recovery rhythm. 3) The Federal Reserve's monetary policy adjustments. Recently, Powell said that the interest rate hike may be slowed down, and attention should be paid to the conclusion of the Fed's interest rate meeting on December 13-14.