Oil prices are strong in the volatile range

(1) Price performance: After rising 3.71% last week, U.S. crude oil continued to rise for the second week in a row, with an increase of about 2.5%. Brent oil rose for two consecutive weeks.

(2) Focus on:

International oil prices continued to rise last week. Market sentiment was strongly boosted by good news from Asia, with better demand expectations. The market continues to be in a tight supply state and is not expected to improve in the short term. If supply losses from Russia approach 3 million barrels per day, Brent prices could easily top $100 a barrel again.

① There are signs of adjustment in the impact of financial attributes. Last week, the Federal Reserve raised interest rates as scheduled at its meeting on interest rates, and expressed its near-loose and far-tight stance on future monetary policy, which may ease the pressure on financial attributes in the short-term and intensify in the long-term. In addition, it is necessary to pay attention to the expected impact of the recent economic stimulus policy in China and the German Chancellor's visit to China on the expected impact on the financial market.

②The global crude oil supply is temporarily stable. Global crude oil exports, OPEC crude oil supply, and Russian crude oil supply remained basically stable in October. In November, OPEC’s production cuts began to be implemented. In December, EU sanctions on Russian crude oil are about to be implemented. It is necessary to focus on the real progress on the supply side.

③ Short-term traffic demand dropped sharply. The United States and Europe are gradually entering the off-season of winter traffic travel. China has been frequently disrupted by the recurrence of the epidemic recently, resulting in weak traffic travel. Last week, the road travel indexes in China, North America and Europe dropped by 9.2%, 2.6% and 2.1% respectively.

④The geopolitical game of oil price continues. The strong willingness of OPEC and Russia to support prices and the Biden administration's policy of suppressing oil prices have formed a geopolitical balance effect on crude oil prices. After OPEC announced production cuts in early October, this month Biden has successively introduced measures such as extending the state reserve, considering imposing additional taxes on oil companies, and considering banning the export of refined oil products.

This week, attention will be paid to the progress of Russia's oil price cap. The U.S. Treasury secretary will travel to Europe Monday to Wednesday to discuss the price cap, and the U.S. Treasury secretary's trip to India on Friday may also touch on the issue. EU sanctions are imminent on December 5, and details are yet to be determined. If the price ceiling is raised to $80/barrel, it may increase the probability of passing the plan; if Russia agrees to maintain crude oil exports below $80, it will reduce the upside risk of oil prices breaking through in winter.

(3) Oil price outlook:

Short-term oil prices are running strongly within the shock range. The U.S. mid-term elections are imminent, and Biden’s previous measures to suppress oil prices continued to encounter resistance, which weakened the geographical balance pressure above oil prices.

The implementation of OPEC production cuts and the imminent Russian sanctions have strengthened the geographical support of crude oil prices. The combined effect pushed up oil prices towards the upper edge of the $90-100/barrel range. If there is no major negative event, it may try to reach $100, but it may encounter greater resistance at this price. Or positive events need to pay attention to the progress of the price cap plan this week. If the implementation of the EU's original sanctions plan is equivalent to the cancellation of the EU's original sanctions plan, the geographical premium that is expected to be pushed up by Russia's production cuts will fall back.

Upside risks include: OPEC extending production cuts, Russia taking the initiative to cut exports, expanding military conflicts, etc.

Downside risks include: global political and financial system crisis, reaching the Iran nuclear deal, etc.