On Friday (August 26), U.S. oil prices are bound to recover this week. OPEC+ organizations stabilize markets to boost oil prices. The group's implementation rate of production cuts reached 546% in July, up from 320% in June. In addition, concerns about Russian crude oil supply also supported the recovery in oil prices.
However, many factors still limit the rise in oil prices. Pressure from the global economic slowdown has spiked, Iran is also likely to re-enter the crude oil market, and the Federal Reserve's hawkish tone of support for the dollar has also put pressure on oil prices. Oil prices as a whole are still stuck in the range of shock finishing.
Next week, the US market will release a series of important data such as non-farm paying, in addition to the global economic slowdown, Iran nuclear negotiations, OPEC news and other factors, investors should also pay special attention. Next, let's look at a few factors that have influenced the trend of oil prices this week.
U.S. crude oil prices daily chart
Brent crude oil price daily chart
OPEC+ organizations stabilize markets to boost oil prices
Foreign media reported that OPEC+July production was 2.892 million barrels lower than the rated target. This led to an implementation rate of 546% of OPEC+ production cuts in July, up from 320% in June. Western sanctions on some OPEC members and insufficient investment by other members are the main factors behind the production failure. Among oil-producing countries, only Saudi Arabia and the United Arab Emirates are said to have excess capacity to compensate for the loss of production.
Saudi Energy Minister Prince Salman said OPEC+ has the means to deal with market challenges, including cutting production at any time in different forms, in response to the possibility of a nuclear deal with Iran, which could return the sanctioned country to the oil market. He added: "The crude oil market has fallen into a self-perpetuating vicious circle, liquidity is very thin, and extreme volatility undermines the basic function of the market to effectively find prices. OPEC+ will begin to develop a new agreement after 2022 that builds on previous successes.
Analysts at Sweden's Nordic Bank said Saudi Arabia had recently issued comments about the disconnect between oil prices and market fundamentals, strongly suggesting that OPEC would cut production significantly at its next meeting. Analysts said: The Saudi Energy Minister's words show that oil prices are too low in saudi arabia 's eyes (about $20 lower) and there can be no other interpretation. Another factor that may encourage the Saudi view is that the Gulf states may struggle to meet higher production targets, making production cuts more attractive.
Concerns about Russian crude supply support oil prices
Russia's oil production is strong and demand growth is weaker than expected, which means that the oil market is likely to remain surplus for the rest of the year and early next year, which should limit the upside in oil prices. But OPEC's limited spare capacity, as well as uncertainty about how Russian oil flows will evolve after the EU ban takes full effect, should also limit the downward trend in oil prices in the medium term.
However, Russia's Nord Stream 1 pipeline will be closed for another three days at the end of August, which will further disrupt Europe's gas supply. Gazprom (GAZ) said the Nord Stream-1 gas pipeline will undergo routine maintenance from August 31 to September 2, suspending gas supply for three days. Gazprom said in a statement that the only gas compressor unit still in operation will be shut down for three days for technical overhaul and preventive maintenance. The overhaul will be carried out by Russian experts and Siemens experts. Gazprom said: "After the completion of the work, in the absence of technical failures in the equipment, natural gas transportation will return to the level of 33 million cubic meters per day." ”
At the same time, explosions in Russian-controlled Ukraine and near military bases in Russia clearly indicate that Kiev is increasingly capable of striking Moscow's logistics far from the front lines, and also indicates that the military war between Ukraine and Russia will be difficult to end in a short period of time and may escalate, and the resulting supply shortage will not be alleviated soon, and it will also limit the decline in oil prices. According to the Ukrainian Independent News Agency, Ukrainian President Zelenskiy said that if Russia tries Ukrainian prisoners of war who surrendered in Mariupol, then the Russian side will cut off the road to negotiations, and Ukraine and Russia will no longer have the possibility of holding any negotiations. According to the "Russian Newspaper" quoted Russian Permanent Representative in Geneva Gatilov on the 22nd, it was reported that there is currently no platform for the presidents of Russia and Ukraine to meet. He said the more serious the conflict between the two sides, the more difficult it is to solve the problem through diplomatic means.
Fears of a global economic slowdown are bad for oil prices
In the United States, the Fed's aggressive interest rate hikes to combat inflation at decades high could lead to a slowdown in the economy and weaken fuel demand.
Abnro Bank economists have lowered their forecasts for U.S. economic growth and inflation, and the investment recovery is now expected to weaken markedly. Economists at the bank pointed out that we have lowered our fixed asset investment forecast for 2022 to 2.5% from the previous 5% and slightly lowered our 2023 forecast to 1.9% from the previous 3.3%. Our expectations for consumption stagnation in the second half of 2022 remain largely unchanged. This brings our overall GDP forecast for 2022 to 1.7% from 2.2% previously and to 1.0% for 2023 from 1.3%. The labor market is expected to deteriorate against the backdrop of weak demand, and the unemployment rate is expected to rise from the fourth quarter. Ultimately, we expect the unemployment rate to rise by 1.5 percentage points to around 5 percent by the end of 2023, and the National Bureau of Economic Research (NBER) says a recession could occur in the second half of 2023.
In China, People's Bank of China cut the benchmark interest rate on loans, causing the market to worry more about the possible slowdown in the Chinese economy, and the market is worried that the demand for crude oil will contract, exacerbating the decline in oil prices.
People's Bank of China announced at its latest monthly meeting on Monday that it would cut the one-year loan concessional rate by 5 basis points to 3.65% from 3.7% and the five-year loan rate by 15 basis points from 4.45% to 4.3%, reducing the repayment cost of existing loans. As economic woes deepened, markets reacted negatively to policymakers cutting lending rates. China's economy barely avoided contraction in the second quarter as a covid-19 lockdown weighed on industrial and consumer spending, growing by only 0.4%. Nonetheless, china's signature strategy of zeroing out COVID-19 remains in operation as a result of the economic losses caused by China's strict epidemic prevention policies, even as most parts of the world remove COVID-19 restrictions.
Also, earlier on Thursday, China announced a stimulus package worth 1 trillion yuan ($146 billion) to boost the economy, which accounts for about 1 percent of the continent's total GDP. China's State Council on Thursday reportedly unveiled 19 consecutive policies to boost the economy, while announcing a one trillion yuan ($146 billion) stimulus measure to boost the economy affected by the lockdown and the housing market crisis.
China's stimulus package will include a further 300 billion yuan for infrastructure projects by national policy banks, on top of the 300 billion yuan announced at the end of June. Local governments will allocate 500 billion yuan of special bonds from the previously unused quota. China proposes to use "the tools available in the toolbox" to maintain a reasonable policy scale in a timely and decisive manner. The economy will not be overheated by over-stimulus, and China will not overdraft its future policy space. Commit to approve a number of infrastructure projects. Encourage local governments to use urban special credit policies to support reasonable housing needs. Committed to continue to reduce financing costs, and introduce measures to support the development of private enterprises and platform companies.
On the European side, the European energy crisis will pose a threat to the European economy and have a negative impact on crude oil demand. Italian media quoted an assessment analysis by the European Stability Mechanism, an EU agency, as saying that if Russia stops gas supply in August, it could lead to eurozone countries running out of gas reserves at the end of the year, and Italy and Germany, the two most at-risk countries, may lose 2.5% of their gross domestic product.
According to the analysis, the suspension of natural gas supply by Russia could trigger a quantitative energy rationing and economic recession in eurozone countries. If nothing is done, the EURozone's GDP could lose 1.7 per cent, while the EURozone countries could lose 1.1 per cent of their GDP in accordance with the EU's requirement to reduce their own natural gas consumption by up to 15 per cent.
Europe faces new disruptions to its energy supply as pipeline operators said on Monday that a broken pipeline system for oil from Kazakhstan to Europe via Russia was more worrying in the face of a sharp drop in natural gas supplies. Caspian oil pipeline operator CPC said it had suspended the export of two of its three berthing points (SMPs) at its Black Sea terminals, confirming previous reports.
The Iran nuclear deal is making progress against oil prices
With the optimistic progress of the Iran nuclear deal, the hope of Iranian crude oil returning to the market has increased significantly, which will alleviate the current supply shortage and put downward pressure on oil prices.
Discussions between EU member states and the United States on the Iran nuclear deal appear to be making progress, saying they are now closer to a nuclear deal than they were two weeks ago. Iran's crude oil production capacity has increased significantly, which could pose a threat to rising oil prices. An official of the Iranian National Oil Company said iran's ministry of oil and subsidiaries have detailed plans to increase crude oil production to 4.038 million barrels per day by March 20, 2023. Hormuz Qalavand, head of supervision of oil and gas production at The Iranian National Oil Company, said the plan, which includes drilling new wells and repairing existing wells in both onshore and offshore fields, will pay special attention to the reduction of natural gas combustion and environmental hazards.
A senior U.S. administration official told CNN that negotiations to restart the Iran nuclear deal continue while Iran dropped another key requirement related to nuclear inspections. If sanctions are lifted, it will take Iran about a year and a half to ramp up oil production to a capacity of 4 million bpd, up from 2.6 million bpd today. But Iran could start selling some of its previously stored oil in less time. As oil market supply increases, OPEC+ is expected to begin consultations to renew its partnership beyond 2022. Iran is not currently bound by the OPEC+ production cut-off agreement and is likely to remain unconstrained at the time of the initial increase in production.
If Iran and the United States reach a new nuclear deal, the United States will lift sanctions on Iran, and Iran will supply more than 2 million barrels of crude oil to the crude oil market every day, driving down energy prices at a time when global inflation has reached decades-high levels. Negotiations between the European Union, the United States and Iran to resume the 2015 nuclear deal continue, and Iran said it was evaluating the U.S. response to the "final" text of the EU's resumption of the deal. Earlier, The WHITE House press secretary Pierre said that if it is in the interests of the United States, the United States will agree to the Iran nuclear deal.
TD Securities analysts explained that no news is good news on a possible Iran deal. While fears of an imminent nuclear deal with Iran have led to a sharp decline in our expectations of energy supply risks, alerting to a bull market in crude oil, energy traders are increasingly suspicious of the legal and political risks associated with a potential Iran nuclear deal. After all, the Iran nuclear deal, which has the potential to drive a sustained sharp drop in the supply risk premium, is expected, but this potential deal appears to be blocked by legal and political risks, making the outlook for the crude oil market uncertain.
The Fed maintained a hawkish tone, and the US dollar continued to be strong and unfavorable to oil prices
The dollar index extended its rally, with the dollar trend making crude oil more expensive for buyers holding other currencies. As major Western central banks raised interest rates sharply to curb the surge in inflation, economic activity slowed and weakened crude oil demand, while the Fed continued to tighten monetary policy to push up the dollar, weakening the attractiveness of crude oil.
Numerous Fed officials have said in recent days that the Fed needs to continue to raise borrowing costs to control inflation, which is at decades high. A stronger U.S. dollar makes dollar-denominated crude oil more expensive for investors holding non-U.S. currencies. Since March, the Fed has raised its benchmark overnight rate by 225 basis points to counter its highest inflation in 40 years.
Important is Fed Chairman Jerome Powell's remarks scheduled for Friday at a global central bank economic policy symposium in Jackson Hall, Wyoming. Given the evidence of depleted price pressures and the accelerated consequences of a sharp Fed rate hike, Fed Chairman Jerome Powell will discuss a possible slowdown in the pace of rate hikes, but he is expected to offer assurances that the Fed will be committed to addressing inflation, even as recession fears remain. Even so, the market expects Fed Chairman Jerome Powell to issue hawkish guidance in the same tone.
Jim Ritterbusch, president of crude oil consultancy Bitbusc, said a stronger dollar hit a five-week high, limiting crude oil gains. While crude oil and refined products can escape the impact of a strong dollar in a single trading day, the long-term strength of the dollar will pose a significant resistance to the sustainable rise in oil prices.
This article originated from Huitong Network