International oil prices plummeted by nearly 5 percent! U.S. crude oil inventories surged, and bearish positions continued to increase

As of the close, the price of light crude oil futures for December delivery on the New York Mercantile Exchange fell by $3.76 to close at $72.9 per barrel, a decrease of 4.90%, and the price of London Brent crude oil futures for delivery in January 2024 fell by $3.76 to close at $77.42 per barrel, a decrease of 4.63%.

"Recently, international oil prices have risen and fallen, a bit like a roller coaster, the early stage of the Palestinian-Israeli conflict once rose to 90 US dollars / barrel, since October 20 after the international oil prices have fallen, as of November 16 has fallen for 20 trading days, a cumulative decline of 17.44%. Now the crude oil market is seeing a surge in bearish positions, and it is expected that there will be big moves in the later period. Li Xin, a trader in the futures market, said in an interview with a reporter from the China Times.

Bearish positions continue to increase

U.S. crude inventories rose to their highest level since August last year, with production averaging 13.2 million b/d over the past month and a half, while the Strategic Petroleum Reserve remained at 351.27 million barrels over the same period, according to data released by the U.S. Department of Energy on Wednesday. At the same time, crude oil inventories rose by a total of 17.5 million barrels in the first two weeks, a much larger increase than expected. Among them, crude oil inventories in the week of November 3 reached 439 million barrels, the highest since August.

However, the reporter found that due to the system upgrade, the US Energy Information Administration only released two weeks of inventory, production, demand and import and export data on Wednesday, but the US Energy Information Administration did not compare the data from two weeks ago in the text report. The U.S. Energy Information Administration has made changes to the structure of some tables, and it is not yet known if there are any new adjustments to the composition of inventories.

At the same time, the U.S. Energy Information Administration said it had changed the way it collects some of the data. Some traders in the futures market said that the next effect of this change should be to cause higher oil inventories than before. It is worth noting that these data have already exacerbated the market's unease about weak oil demand and stable supply, as fundamentals have begun to loosen.

Regarding the recent oil price volatility, Daniel Ghali, senior commodity strategist at TD Securities, also said that the decline in oil prices may accelerate with multiple selling plans, thus falling into a vicious circle, and market traders may close most of their long positions.

Hedge funds have increased their short positions betting on further declines in oil prices to 145 million barrels on Nov. 7, up from 59 million barrels on Sept. 26, according to public data. Overall, though, financial investors still hold more long positions than short positions, but fund managers have been selling crude oil for the past six weeks, equivalent to 196 million barrels of crude oil.

The risk of a Palestinian-Israeli conflict has not spilled over

"The recent sharp decline in international oil prices is because, on the one hand, the Palestinian-Israeli conflict has not spilled over, the conflict has not expanded to other countries, and has not led to a further reduction in crude oil production and exports in the Middle East; Guosen Futures analyst Fan Chunhua said in an interview with a reporter from the China Times.

Everbright Futures analyst Du Bingqin also told the "China Times" reporter that since the G7 imposed sanctions on Russian oil exports, Russian oil supply has indeed declined, but more of the impact is that its oil trade flow has changed, and the main export destinations have changed from Europe and the United States to India and China, etc., judging from the latest data, Russia's crude oil export prices in October are basically higher than the previous G7 set a limit of 60 US dollars / barrel, which also shows that the G7 sanctions on Russian oil exports have not played a complete role in restricting them.

At the same time, the global crude oil supply and demand structure has changed in the fourth quarter, from the tight global crude oil supply in the third quarter to the loose supply, the demand has weakened significantly, and the supply and demand pattern has changed greatly. Fan Chunhua said that the early OPEC production cut plan has promoted the rise of international oil prices in the third quarter of this year, and the news that Saudi Arabia and Russia have extended the additional production cut policy to the end of this year has already been reflected in the market price, and the good news of the production cut has been digested before October.

From the perspective of the recent supply side, Du Bingqin said that the latest OPEC monthly report shows that the output of OPEC 13 countries increased by 800,000 barrels month-on-month in October, mainly from Angola, Iran and Nigeria, of which Iran's crude oil exports have continued to rebound since the beginning of this year, with the current output exceeding 3 million barrels per day, and the export level approaching 1.5 million barrels per day, but the overall export growth rate has slowed down to a certain extent.

It is understood that although Saudi Arabia's crude oil production continues to decrease according to the previously announced production reduction plan, its actual exports may increase to a certain extent, mainly to consume its own domestic inventory. If Saudi Arabia's current production cut policy does not continue to the first quarter of next year, then under the influence of weak demand, it is expected that there will be a accumulation of inventory in the first quarter of next year, which is also part of the recent crude oil market transactions.

Previously, the United States eased sanctions on Venezuelan oil, and some of Venezuelan crude oil has begun to flow to the United States this year, mainly because the United States issued a license to Chevron at the end of last year to allow it to resume oil production in Venezuela, and the data shows that the proportion of Venezuelan oil exports to the Americas rose by more than 20% in the first three quarters of this year. Venezuela's current oil production is close to about 800,000 barrels per day, and due to its own technical and financial constraints, it is difficult for Venezuela to increase production quickly in the short term, and Chevron expects to increase the output of its joint venture projects in Venezuela by 70,000 barrels per day by the end of 2024.

Goldman Sachs said crude oil production was much higher than expected

In the face of the recent huge fluctuations in international oil prices, Goldman Sachs released the latest report predicting that the average price of Brent crude oil in 2024 will be $92 per barrel, including $86 per barrel in the first quarter, $92 per barrel in the second quarter, $95 per barrel in the third quarter, and $94 per barrel in the fourth quarter. Goldman Sachs said that the output of non-core OPEC members was much higher than expected.

It is worth noting that in the second half of the year, the domestic crude oil production in the United States has also been increasing, Guosen Futures analyst Fan Chunhua said in an interview with the "China Times" reporter that although the number of drilling rigs in the United States has not increased significantly, but since August, the United States crude oil production has continued to increase, at the end of July, the daily output of American crude oil was about 12.2 million barrels, and the production began to increase in August, and the daily output of American crude oil reached 13.2 million barrels after October, an increase of about 1 million barrels per day over July.

Since November, the operating rate of the United States and China, the two largest consumers of crude oil, has dropped to 85 percent, down about 10 percent from the highest of 95 percent in the third quarter, and the operating rate of China's Shandong refinery is now about 63 percent, down about 10 percent from the highest of 73 percent in the third quarter. The decline in refinery operating rates reflects a significant decline in demand for crude oil.

"The fourth quarter is the off-season for U.S. crude oil consumption, U.S. crude oil production has increased significantly, and demand has weakened significantly, resulting in a reversal in the global crude oil supply and demand structure, so oil prices have continued to fall recently. The trend of oil prices in the later period mainly depends on whether OPEC will have a larger-scale production reduction policy measure in the first quarter of next year, otherwise oil prices may remain weak in the near future. Fan Chunhua said.

However, Du Bingqin said that due to the number of drilling rigs that have fallen to a low level, it is expected that the momentum for US shale oil production to continue to increase next year will be insufficient. The EIA expects U.S. crude oil production to increase by 990,000 b/d in 2023 and 250,000 b/d in 2024. It should be noted that in the context of the current OPEC+ insistence on production cuts, the high level of production in the United States may make it compete for a part of the market share of OPEC and Russia, since US shale oil is a light crude oil. Therefore, it is not able to fully occupy the market of OPEC and Russian medium and heavy components.

According to the reporter's understanding, OPEC will hold a ministerial meeting on November 26 to determine the output policy. According to statistics, OPEC has been cutting output since late 2022, but crude oil production increased by 80,000 b/d to 27.9 million b/d in October, mainly driven by increased production in Iran, Angola and Nigeria. Amid the volatility in oil prices, Saudi Arabia said it expects to extend its plan to cut production by 1 million barrels per day until early 2024.

According to a survey of traders and analysts by foreign media, Saudi Arabia may maintain the production cut plan that began this summer until January next year as global oil demand growth slows down and supply increases. In addition, the U.S. CPI and PPI data fell more than expected, indicating that inflationary pressures are easing and the Fed's monetary policy shift is becoming stronger, but recession fears have also affected market risk appetite.

Editor-in-charge: Shuai Kecong Editor-in-chief: Xia Shencha