Trading sentiment picks up, crude oil increases significantly

Trend review:

Brent2303 closed at US$86.3/barrel, -1.5% for the week.

Short-term financial risk appetite picks up

Crude oil futures positions can reflect financial speculation to a certain extent, which is affected by changes in the Fed's monetary policy. In the second half of 2020, the ultra-loose monetary policies of the United States and Europe pushed up the historical high of crude oil holdings; in the second half of 2021, the holdings fell to an eight-year low after tightening. In December 2022, the Federal Reserve indicated that it may slow down rate hikes, U.S. stocks rebounded, the dollar fell, and crude oil positions rose at a low level. Since the beginning of 2023, positions have risen rapidly, showing that financial trading sentiment has picked up significantly.

Fundamentals are still in a situation of coexistence of support and pressure

①The support mainly comes from the recovery of demand in China. After the anti-epidemic policy was relaxed at the end of last year, road traffic trips increased significantly in January. Although there is a seasonal decline during the Spring Festival holiday, it is expected to usher in a better recovery after the resumption of work after the holiday. Especially compared to the low point in the second quarter of last year, the year-on-year growth in the second quarter of this year may be significant. In the first half of the year, the focus will be on driving demand for gasoline consumption from transportation, and in the second half of the year, focus will be on boosting China's economic demand for the diesel industry.

② The pressure comes from the expected economic slowdown in the US and Europe. Although the Fed has slowed the pace of rate hikes, it may temporarily maintain high interest rates until inflation falls to its long-term target. The slowdown in economic growth in the United States and Europe will put greater pressure on overseas demand for oil products.

③ The supply is expected to be relatively stable. OPEC maintains production cuts, Russia temporarily maintains exports, and the United States maintains low-speed growth. If there is no sudden supply interruption and active production reduction, the variables focus on the degree of demand fulfillment.

Focus on three things this week:

① On February 1, the OPEC Supervisory Committee will hold an online meeting to assess the progress of supply and demand and production policy. It is initially estimated that the probability of policy adjustment is not high, and the status quo of production reduction may be maintained.

②In the early morning of February 2, the interest rate resolution of the Federal Reserve's interest rate meeting was announced. A slowdown in rate hikes would help boost financial sentiment.

③ On February 5, the European Union imposed sanctions on Russian refined oil products. Although the U.S. and Europe have accumulated refined oil products in the near future, the trend of crack spreads is relatively strong, which partly reflects concerns about EU sanctions. The strength of gasoline and diesel will boost crude oil to a certain extent.

Oil price outlook

1. Short-term financial sentiment pushes up oil prices, and we need to pay attention to the degree of demand fulfillment. If China's demand recovers better after the Spring Festival, there may still be room for oil prices to rise: otherwise, they may fall back and take a break.
2. May remain volatile in the medium term. The amplitude is limited up and down. There is strong support from the U.S. purchase and storage price range below $70, and there is greater pressure at the $100 integer mark above.

Risk warning:

①Downside risks: Overseas economic recession than expected.

② Upside risks: OPEC or Russia to expand production cuts