Global crude oil supply plummets

(1) Price performance: This week, U.S. crude oil rose for the first time after falling for three consecutive weeks, with an increase of about 6.05%. Brent oil also kept pace, with an increase of about 3.62%. The fall in the U.S. dollar supported oil prices, the tightening of the supply side benefited oil prices, and the renewed expectations of demand recovery in Asian countries on the demand side dominated the rise in oil prices this week.

(2) Focus on:

Oil prices fell first and then rose this week. At present, WTI is more effective at $72 and Brent at $80.

① The European Union has reached a consensus on the discussion of sanctions against Russia. The US$60 German price ceiling will to a certain extent cause Russia to take the initiative to cut production, and there is an upside risk in oil prices.

② OPEC production policy is expected to have a significant impact on oil prices. In November, OPEC's crude oil production hit the largest month-on-month drop since the big production cut in 2020, showing OPEC's strong willingness to implement production cuts and raise prices. The latest OPEC+ meeting decided to maintain production cuts, which will have limited support for oil prices.

③The recurrence of the epidemic in China has increased the pressure on the demand for oil products. The epidemics in many places in China have been concurrent, and the traffic volume of road traffic and air traffic has continued to decline, falling to the lowest level since the Spring Festival. Expectations to boost demand for Chinese oil products in winter fell through. The demand side is still under great pressure on oil prices. Since this week, the opening-up policies of various regions have been gradually implemented, and it is necessary to continue to pay attention to the situation of domestic oil products.

④ The destocking of U.S. oil products has formed a certain support for oil prices. U.S. commercial crude inventories fell by 12.58 million barrels last week, the biggest weekly drop since June 2019. Strategic reserve crude oil inventories fell by 1.4 million barrels to 389 million barrels. Since April, the release of 180 million barrels has been close to completion. If the release of strategic stocks ends, the decline in commercial crude oil inventories may be accelerated.

(3) Oil price outlook:

1. Short-term oil price sentiment is weak. On the one hand, due to the severe epidemic situation in China, the demand for oil products has fallen back; on the other hand, due to the expectation that the European Union may relax sanctions against Russia, crude oil and refined oil futures have gradually transferred to the contango structure, and the net long position of crude oil funds has dropped sharply, and the oil price sentiment has turned short-term weak.

2. In the medium term, we need to focus on geopolitical variables. On the one hand, whether the temporary maintenance of production cuts will be changed in subsequent meetings; on the other hand, today's EU's final plan for Russia's production and subsequent Russian countermeasures.

3. At present, there are still triple supports below the oil price. OPEC's strong willingness to raise prices makes it possible to maintain or even expand production cuts, Russia's demand for high oil prices may trigger its active production cuts, and the United States previously announced that it will buy back strategic reserve stocks at a price of 68-72 US dollars per barrel to provide support. WTI USD 70/barrel is a relatively certain support price, while whether OPEC and Russia will cut production is a relatively uncertain geopolitical variable. If production cuts are announced, oil prices may be underpinned, and if production cuts are abandoned, there is still room for downside. Pay attention to the progress of geo-supporting variables.