Industrial Investment (UK) Crude Oil Daily Review: Weak demand & increased supply, international oil prices plummeted

While the continued weakening of the U.S. dollar has provided some support to oil prices, weakness in manufacturing data in several countries has exacerbated fears that the global recession has weakened the outlook for crude oil demand, while saudi and Russian crude oil production have increased, Libyan crude oil production and exports have rebounded, the number of active rigs in the United States has continued to increase, and the market is expected to increase production slightly at this week's OPEC+ meeting or discussions, alleviating tight supply concerns, and international oil prices fell sharply on Monday. As of the U.S. close, U.S. crude oil Futures for September closed down $4.41, or 4.49%, at $93.70/b, with the highest intraday touch of $98.40/b and the lowest falling to $92.42/b; Brent crude Oil Futures closed down $3.71, or 3.58 percent, at $99.81 a barrel, with an intraday high of $104.37 a barrel and a low of $99.07 a barrel.

Fears of a recession sparked by soaring inflation and interest rate hikes remain a roadblock to the upside in oil prices, as a recession will affect people's incomes and weaken fuel demand. ANZ analysts said fuel sales for Western road trips were weakening and gasoline demand remained below the five-year average for the same period. The Reuters survey also illustrates this, with analysts forecasting Brent crude to average $105.75 a barrel in 2022, down from the June forecast of $106.82, the first downward revision in monthly oil prices since April. The average price of U.S. crude oil is expected to fall to $101.28 a barrel. At the same time, JPMorgan Chase expects Brent crude oil to have a price low of $100/ barrel in the second half of 2022 and a price high of $90 / barrel in 2023. The bank's oil strategists noted that the risk of a recession has not yet been reflected in the oil market and that the risk of recession is increasing.

Weak manufacturing PMI data in major countries has heated fears of a global recession in the market, casting a shadow over the outlook for crude oil demand. China's official manufacturing PMI, the world's second-largest economy, fell back into contractionary territory over the weekend, recording 49.0 at 50.4, compared to 50.2, while the non-manufacturing PMI fell to 53.8 to 52.3 from 54.7. Meanwhile, U.S. manufacturing activity showed signs of slowing in July, charting a gloomy outlook for the economy and exacerbating recession fears. The forward-looking new orders sub-index for the ISM survey fell to 48.0 in July from 49.2 in June, the second consecutive month of contraction. This, coupled with a steady decline in undelivered orders, suggests a further slowdown in manufacturing in the coming months.

On the supply side, production and exports from major oil-producing countries increased, alleviating the imbalance between supply and demand. Saudi Arabia's crude oil exports surged to their highest level since April 2020, under pressure from the international community to curb rising oil prices. Saudi Arabia's maritime traffic reached around 7.5 million bpd last month, compared to 6.6 million bpd in June, according to tanker tracking data collected by the agency. OPEC+ secondary sources were quoted as saying that Russia's crude oil production rose to 9.78 million b/d in June from 9.27 million b/d in May. According to the report, Russia's output in June was 885,000 b/d lower than the production quota under the OPEC+ agreement, an improvement from the gap of 1.28 million b/d in May. In addition, according to agency statistics, Kazakhstan's oil production in July increased by 15% from June to 1.38 million bpd, which is lower than the OPEC+ quota.

Meanwhile, Libya's crude oil production and exports climbed after the ban was lifted in mid-July, a trend that could help ease concerns about the OPEC member's ability to supply global markets. According to Bloomberg Tanker Tracking data, Libya's average exports in July were about 589,000 bpd, the lowest level since October 2020. However, after the lockdown was lifted on July 15, exports in the second half of the month were more than double the volume of the first half. The Libyan government has appointed a new chairman to run the national oil company, and officials have struck a deal with protesters and tribal leaders to reopen oil fields and export terminals that have been largely closed for months. Oil Minister Mohamed Oun said oil production had recovered to 1.2 million barrels per day.

OPEC+ and OPEC+, which is made up of allies including Russia, will meet this Wednesday (August 3) to discuss September production. A Fox News reporter tweeted Tuesday as citing sources with knowledge of the meeting between President Biden and the Saudi king, saying, "Sources told me that Saudi Arabia will push OPEC+ to increase oil production at Wednesday's meeting." The Fox News reporter added: "It is reported that the Saudi king gave him the above assurances during a face-to-face meeting with President Biden on July 18. According to Baker Hughes data, U.S. oil production continued to climb, with the number of active rigs increasing by 11 in July, the 23rd consecutive month of increase, a record high.

In addition, many places in the United States have declared a public health emergency due to the monkeypox epidemic, which may also affect the demand for crude oil. U.S. Illinois Governor Pritzker on Monday declared the state a public health emergency over the monkeypox outbreak. Pritzker also said monkeypox is a rare but potentially serious disease that requires the full mobilization of all available public health resources to respond to the current outbreak. According to the U.S. Centers for Disease Control and Prevention, there are currently more than 5,000 confirmed cases of monkeypox in the United States, and 520 cases in Illinois, second only to New York and California.

However, a failure of Nord Stream-1 equipment in Russia could further affect gas supplies or provide some support for oil prices. The Kremlin issued a statement on Monday saying Russia has little ability to change the status quo with Nord Stream-1 equipment. Last week, Russia cut nord Stream-1 gas supply to 20 percent of its capacity due to escalating energy tensions sparked by the war in Ukraine. The European Union (EU) accused Russia of using energy blackmail, but the Kremlin argued that Gazprom's business disruption was caused by maintenance issues. According to a spokesman for Nord Stream 1, Russia's largest gas pipeline to Europe, one of the company's gas turbines had not yet arrived on Tuesday after repairs in Canada, while a second turbine was defective.

Next, the market focus will shift to the American Petroleum Institute's (API) weekly crude oil inventory report. For the week ended July 22, API crude inventories fell by 4,037,000 barrels to 414.6 million barrels, the largest decline since the week of April 15, 2022, with an increase of 1.86 million barrels in the previous value and an expected increase of 500,000 barrels. An increase in inventories would put additional downward pressure on oil prices. In addition to this, the main attention of the market will be focused on the discussion around the recession and the development of the global epidemic.

DOLLAR INDEX

The dollar index rebounded slightly to a high of 105.856 in early trading on Monday and then came under pressure again as the U.S. manufacturing PMI index showed signs of slowing economic activity, prompting investors to raise bets that the Fed's aggressive policies would plunge the U.S. economy into recession, which in turn fueled speculation that the Fed would take a more gradual approach to raising interest rates, which weakened the dollar's appeal.

Despite the recent decline in the dollar, Win Thin, head of global monetary strategy at Brown Brothers Harriman, stuck to the medium-term bullish outlook for the dollar, explaining that the Fed remains committed to lowering inflation. The dollar index fell for the fourth consecutive session and traded near new lows near the 105.00 mark, the lowest level since July 5. We remain bullish on a stronger dollar and believe the market has misread the Fed's commitment to lower inflation. However, in the absence of strong economic data, the dollar is unlikely to gain much traction. This week's US data will be key to the dollar's medium-term outlook. The Global Interest Rate Probability (WIRP) shows that the market has fully digested the Fed's expectations for a 50 basis point rate hike in September, with a 30% probability of a 75 basis point rate hike in September; The Fed will raise interest rates by 100 basis points over the next 6 months, when the federal funds rate will peak at 3.50%, followed by a cumulative 50 basis point rate cut. With inflation still well above target and the labor market at full employment, the Fed is not expected to shift its policy stance quickly.

U.S. manufacturing business activity expanded slowly in July from June, with the final S&P Manufacturing Purchasing Managers' Index (PMI) falling from 52.7 to 52.2, below the initial value and market expectations of 52.3. Chris Williamson, chief business economist at Global Market Intelligence at Standard & Poor's, commented: "In addition to the COVID-19 lockdown period, U.S. manufacturers reported the toughest business environment since 2009 in July. The spurt of growth this spring has reversed rapidly, with new orders for factory goods falling for the second straight month in July, leading to a first decline in production in two years and a sharp slowdown in job growth. ”

According to a survey released by the American Supplier Management Association (ISM), the manufacturing purchasing managers' index (PMI) fell to 52.8 in July from 53 in June, the lowest level since June 2020, but better than the market expected 52. The new orders index was 48%, down 1.2 percentage points from 49.2% in June; the production index was 53.5%, down 1.4 percentage points from 54.9% in June; the price index was 60%, down 18.5 percentage points from 78.5% in June, the lowest reading since August 2020 (59.5%); and the employment index was 49.9%, up 2.6 percentage points from June (47.3%), shrinking for three consecutive months. ISM Manufacturing performed well for the 26th consecutive month. There are signs that new order rates have declined, and entrepreneurs are increasingly worried about excess inventory and continued record delivery times. Despite uncertainty over the new order rate, employment activity remained strong.

Technical analysis

U.S. crude oil

Daily chart: PolyGa channel convergence, oil prices approaching the lower rail; The 14- and 20-day moving averages are bearish; The stochastic indicator went lower.

4-hour chart: Bolika channel diffusion, oil prices near the lower rail development; 14 and 20 moving averages are bearish; The stochastic indicator went lower.

1-hour chart: The Polyga channel is falling, and oil prices are developing below the middle rail; 14 and 20-hour moving averages are bearish; The stochastic indicator went lower.

Roundup: It is expected that intraday oil prices will oscillate in the range of 92.10-95.50, and you can try to sell high and suck low. Upper resistance focuses on the August 2 high of 94.10, which will be followed by a break above the July 26 low of 94.75, followed by the July 24 high of 95.50 and the July 29 low of 96.40, as well as the July 14 high of 97.00 and the August 1 high of 98.40, while the lower support will keep an eye on the August 2 low of 93.00, a break below will explore the August 1 low of 92.40, then the February 14 low of 92.10 and the February 24 low of 91.45, as well as the July 14 low of 90.55 and the February 25 low of 90.05.

Brent crude oil

Daily chart: Polyga channel fell, oil prices fell below the middle rail; The 14- and 20-day moving averages are bearish; The stochastic indicator went lower.

1-hour chart: Polyga channel declines, oil prices follow the development of the lower rail; 14 and 20-hour moving averages are bearish; The stochastic indicator went lower.

Roundup: It is expected that intraday oil prices will oscillate in the range of 97.60-101.50, and you can try to sell high and suck low. Upper resistance focuses on the August 2 high of 100.20, the breakout will be to explore the July 13 high of 101.20, then the July 22 low of 101.90 and the July 15 high of 102.60, as well as the July 27 low of 103.70 and the August 1 high of 104.40, while the lower support will keep an eye on the July 12 low of 98.90, the break below will explore the July 15 low of 98.15, then the April 11 low of 97.60 and the March 16 low of 96.90, and the February 23 low of 95.80 and the July 14 low of 94.50.

Tuesday Follow:

U.S. June JOB vacancy at JOLTs

U.S. API Crude Oil Inventory Report

Chicago Fed President Evans gave a speech

Cleveland Fed President Mester spoke

St. Louis Fed President Bullard gave a speech

This article originated from the financial world