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Oil prices fall along with stocks as financial sentiment sours


1. Price performance: Brent2305 closed at US$82.6/barrel on Friday, -3.9% for the week. After falling for four consecutive trading days, it began to counterattack at the end of Friday.

2. Short-term deterioration of overseas financial sentiment:

Due to the slowdown in the decline in U.S. inflation and the recent stronger-than-expected economic data, Federal Reserve Chairman Powell said at a congressional hearing on March 7-8 that the pace of interest rate hikes may be tightened again in the future, and the final interest rate may be higher than expected. The speech led to a sharp increase in expectations for the Fed to raise interest rates. Silicon Valley Bank announced its bankruptcy on Friday, triggering worries about financial risks. U.S. stocks fell sharply and gave up all their gains this year. Economic and financial pressures are the main downside risks for oil prices, and if sentiment weakens, it will be detrimental to the stability of the oil price center of gravity.

3. Expected marginal improvement in crude oil supply and demand:

  • On the supply side, OPEC maintained production cuts, and Saudi Arabia raised the official price premium for crude oil exports in April. Russia took the initiative to reduce production, and oil exports fell in February, and refinery starts fell to a half-year low in early March.
  • On the demand side, the global road traffic flow resonated upward at the beginning of the year, and major regions basically returned to the level before the epidemic in 2020, boosting gasoline demand and processing profits. However, the demand for diesel has not yet fully started, and there may be room for further improvement in the future.

What stands out recently is the rapid recovery of demand for oil products in China. The profit of China's main and state-owned refineries has risen to a relatively high level, and the demand for crude oil imports has increased due to the start of operation, which has pushed up some domestic crude oil spot discounts and crude oil import sea freight costs. Reduced supply from the Middle East and increased demand in Asia have kept the Dubai-to-Brent spread strong.

4. Key points of oil market strategy

① Judging from the absolute price, it is currently entering the sixth round of swing market since the beginning of the year. Financial pressure induced a short-term drop in oil prices from the upper edge of the shock range. However, it is necessary to pay attention to the progress of risk events whether it can smoothly stop the decline at the lower edge like the previous rounds. If the financial pressure continues to magnify, it may lead to a fall in the center of the range.

② From the perspective of relative price difference, China's crude oil futures are underestimated to a certain extent to international crude oil futures. The recent recovery of domestic demand for oil products, the strengthening of Dubai relative to Brent, the increase in tanker freight rates, and the decrease in registered crude oil warehouse receipts have all supported the spread between domestic and foreign prices. There have been signs of position changes in the SC near-month contract, so pay attention to the follow-up progress.

③ In the long run, the forecast for a wide range of fluctuations at US$70-100/barrel will be temporarily maintained throughout the year. The US$70 is supported by the repurchase price range of the US strategic inventory, and the US$100 is supported by the important integer mark under the general trend of economic growth slowing down.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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