Gasoline and diesel upside support oil prices

(1) Price performance: On October 30, Beijing time, Brent was 94.08 yuan per barrel, and Brent oil rose about 3.47% this week, ending the continuous decline in the previous two weeks.

(2) Short-term analysis:

Oil prices rose slightly yesterday. On Monday, it went up on Tuesday and went down on Wednesday, and it remained within a narrow range of $90-95 per barrel for several consecutive days. The EIA data released yesterday evening showed that although U.S. commercial crude oil inventories continued to accumulate, low gasoline and diesel inventories pushed gasoline and diesel prices up sharply in recent months, giving crude oil a certain boost.

1. There are no major emergencies this week. The logic of oil prices focuses on two groups of long and short balances: the main line of shock comes from the supply-side support of OPEC production cuts and the hedging of demand-side pressure from the weakening of the macro economy, and the secondary line comes from the US selling reserves against oil prices. Restrictions and U.S. stock purchases supported lower oil prices.

2. OPEC dynamically hedges macroeconomic demand pressures through flexible output adjustment. The slowdown in global economic momentum, the continued tightening of overseas central banks, the frequent recurrence of the epidemic in China, and the political instability in Europe have brought systemic risks, which have put downward pressure on crude oil demand. In this regard, OPEC announced that it would flexibly adjust production to hedge against the decline in demand by means of a "production meeting that may be held at any time". Under the expectation of a mild recession, if OPEC moderately cuts production, it is possible to maintain a balance between supply and demand and stable oil prices.

3. Biden will stabilize price increases by releasing reserves, while repurchasing inventories will provide additional support for oil prices. Although crude oil inventories in the U.S. strategic reserve have fallen to a 40-year low, Biden announced last week that if oil prices rose in winter, he would not rule out continuing to put additional inventories. The policy of stockpiling may be decided on a month-by-month basis to hedge against the boost to oil prices caused by OPEC production cuts. Although the long-term release of inventory is difficult to sustain, the short-term large-scale release may still restrain the price increase. At the same time, it announced to buy back inventory at 67-72 US dollars / barrel, which will strengthen the support for oil prices when they fall to this price.

(3) Oil price outlook:

The demand-side pressure brought about by the financial attributes of crude oil prices is relatively clear, while the supply-side impact brought about by the geographical attributes is continuously adjusted in the multi-party game process.

In the short term, a long-short check and balance situation is temporarily formed, and the shock range is narrowed from $90-100/barrel to $90-95/barrel. However, the current dynamic balance is based on the premise of geopolitical balance. Once one of the geopolitical developments suddenly changes, it may break the pattern of oil price shocks.

Therefore, under the benchmark expectation of mild recession and geo-stable stability, oil prices are expected to fluctuate widely, but we need to continue to pay attention to geo-political progress.

(4) Risk warning:

Upside risks: OPEC prolongs or expands the scale of production cuts, the scale of Russia's geopolitical conflict expands, etc.

Downside risks: global economic crisis, Iran nuclear deal, etc.