Suddenly announced: “The world’s largest” Qatar is expanding production! Will oil prices remain strong?

On February 25, local time, Saad Al Kaabi, Qatar’s Minister of State for Energy Affairs and President and CEO of Qatar Energy Company, announced at a press conference that Qatar’s Northern Natural Gas Field will continue to expand production and is expected to increase production based on existing production capacity. to increase LNG production by an additional 16 million tons per year.

Qatar is one of the world’s largest producers and exporters of liquefied natural gas. Saad Kaabi said the new natural gas expansion project is expected to be completed by 2030, by which time Qatar's annual liquefied natural gas production will reach 142 million tons.

As the Red Sea crisis continues, what will be the outlook for crude oil?

Since the Spring Festival holiday, an important support behind the strong performance of oil prices lies in the continued tense geopolitical situation. After the outbreak of the Red Sea crisis, tanker capacity was lacking, freight rates soared, and voyage times increased. Since the end of February 2023, commercial oil inventories in OECD countries have fallen by 79 million barrels, and disruptions to Red Sea shipping have increased the volume of offshore crude oil by 45 million barrels.

It is understood that after the United States designated the Houthis as a terrorist organization, retaliatory attacks surged. Fotios Katsoulas, chief analyst for tanker shipping at S&P, said vessel utilization, a measure of how much the tanker fleet is being used at any one time, has risen 5% since ships began making the detour. In the past week, the Houthis have launched more than six attacks or attempted attacks on foreign ships and oil tankers in the Red Sea. Among them, the U.S. military confirmed on Tuesday that two U.S.-owned oil tankers were attacked the day before. On Thursday, the Pentagon said its coalition ships in the Red Sea had intercepted six more drones in Yemeni waters. The waters off Yemen are littered with a growing number of scrapped and sunken oil tankers. In response to the ongoing attacks on oil tankers and container ships, the European Union launched a Red Sea escort operation. The mission, code-named "Shield", includes the deployment of European warships and airborne early warning systems to protect cargo ships in the Red Sea, Gulf of Aden and surrounding waters. According to the plan, the operation is tentatively scheduled to last for one year. The EU fleet will only be used to protect civilian ships in the Red Sea area and will not actively attack the Houthi armed positions in Yemen.

Wang Huijuan, an energy and chemical analyst at GF Futures, told a reporter from Futures Daily that Houthi armed attacks have hindered transportation through the Suez Canal and the Red Sea. In order to avoid conflicts in the Red Sea, many ships are taking diversion measures with longer routes: passing through the Cape of Good Hope instead of Suez. . As of the first half of February, cargo throughput through the Suez Canal has dropped by 42% from the peak in May last year, while container throughput has dropped by 82%. An oil tanker sailing from Saudi Arabia to the Netherlands went around the Cape of Good Hope in Africa instead of passing through Suez. The transportation distance increased by nearly 75%. The tanker's diversion resulted in increased transportation distance, higher freight rates, and tighter shipping capacity. Although the Red Sea incident did not cause actual disruptions in crude oil supply. The disruption further boosted crude oil prices, mostly through increases in tanker shipping costs.

"In fact, the recent geopolitical risks of the Red Sea crisis have declined, and the crude oil and refined oil transportation index has also declined. We believe that the ongoing geopolitical disturbances in some areas will also have irregular impacts on oil prices. However, if a large-scale event does not occur, If the conflict occurs, the impact on oil prices will still be relatively limited," said Zheng Mengqi, energy analyst at Hizheng Futures.

Looking at the fundamentals of crude oil supply and demand, Huang Chen, an industrial products analyst at Huishang Futures, said that there is a slight decline expected on the supply side, and demand has not improved significantly. Relevant estimates show that Russian crude oil production in January 2024 was approximately 9.46 million barrels per day, and Russia has fulfilled its commitment to reduce production by 500,000 barrels per day. The U.S. State Department decided not to renew General License No. 44 in February and will restart some energy trade sanctions on Venezuela. The EIA inventory report showed that U.S. crude oil production remained unchanged at 13.30 million barrels per day in the week of February 16. Crude oil inventories increased by 3.514 million barrels, compared with an increase of 12.018 million barrels from the previous value; Cushing crude oil inventories increased by 741,000 barrels, compared with an increase of 710,000 barrels from the previous value. Refinery equipment utilization rate remained unchanged at 80.6%. Gasoline inventories fell by 294,000 barrels, compared with the previous decrease of 3.658 million barrels. Refined oil inventories fell by 4.009 million barrels, compared with the previous decrease of 1.915 million barrels. Under the influence of the early cold wave, U.S. refineries generally underwent maintenance ahead of schedule and their operating rates were low.

On the macro front, according to Zheng Mengqi, the U.S. manufacturing PMI rebounded, and the euro zone manufacturing PMI was lower than expected and the previous value. In February, the initial value of the US Markit manufacturing PMI was 51.5, which was expected to be 50.5, and the previous value was 50.7; the initial value of the euro zone manufacturing PMI was 46.1, which was expected to be 47, and the previous value was 46.6. The minutes of the Fed meeting showed that most policymakers expressed concern about the risk of cutting interest rates prematurely, and there was widespread uncertainty over how long borrowing costs should remain at current levels. Most policymakers at the meeting pointed to the risks of easing the policy stance too quickly, with only a few pointing to the downside risks to the economy associated with maintaining an overly restrictive stance for too long. The minutes reinforced the expectation that the Federal Reserve will not be in a hurry to cut interest rates. The market continues to bet on interest rate cuts starting in June. Expectations for an interest rate cut in March have declined, and interest rates will be cut by 75 bp during the year.

Looking forward to the market outlook, Zheng Mengqi believes that in the short term, the fundamental pattern of crude oil has not changed yet, geopolitical risks have exhausted all the benefits, oil prices have retreated from high levels, and there is support for OPEC+ production cuts below, and crude oil prices will still mainly operate in oscillations; in the medium and long term, if OPEC+ continues the current production cuts , with the seasonal rebound in demand, the supply and demand of crude oil may be tightly balanced, and the market can be bullish on dips.

“Overall, crude oil is still dominated by oscillations in the short term, and the situation in the Red Sea is still not stable. It is now the time for spring maintenance of refineries. The peak demand season has not yet arrived, and there has been no structural change in fundamentals. It is appropriate to wait and see in the short term. ." Huang Chen said.

In Wang Huijuan's view, the short-term rise in oil prices still faces certain resistance: on the one hand, weak domestic refined oil consumption is dragging down demand performance, while the United States is subject to refinery maintenance, and short-term U.S. crude oil consumption is unsatisfactory; on the other hand, the current crude oil has been included in the Geographical risk premium, we need to be alert to the risk of oil price correction after geopolitical risks cool down. In the medium to long term, market risk appetite has improved amid expectations of a rate cut by the Federal Reserve, which is beneficial to the price performance of risky assets. U.S. refined oil consumption is still expected to improve seasonally. On the supply side, with OPEC+ implementing production cuts in the first quarter, the crude oil supply and demand balance sheet is still tight in the first quarter. Oil prices are expected to remain strong overall. The pressure on oil prices lies in the rise in oil prices. Inflationary pressures and negative demand-side feedback on high oil prices.