Do you remember April 20, 2020, when the price of U.S. crude oil futures fell to a historic negative value, falling to -$40 per barrel at one point? That's because global demand has plummeted due to the pandemic, and there is an oversupply and full inventories, so that crude oil is not cared for, and even people have to pay to take it.
Now, three years later, the crude oil market has fallen sharply. On December 13, 2023, the price of U.S. crude oil futures briefly fell below $60 per barrel, hitting a new low in nearly a year.
At the same time, there has been a general dive in other commodity markets, including metals, agricultural products, chemicals, etc. Among them, soda ash, as an important chemical raw material, has not been spared and continues to consolidate at a low level without obvious signs of rebound. What's going on here, and why is there such a sharp drop in crude oil and other commodities?
Changes in supply and demand and inventory characteristics in the crude oil market
The price fluctuations in the crude oil market mainly depend on the balance of supply and demand. Changes in supply and demand will eventually be reflected in the increase or decrease of inventory. In general, when supply is greater than demand, inventories increase and prices fall, and when demand is greater than supply, inventories decrease and prices rise.
The supply and demand of the crude oil market are affected by many factors, including seasonality, geopolitics, policies of oil-producing countries, and the development of new energy. Among them, seasonality is a more obvious factor, which can lead to cyclical changes in crude oil demand and inventories.
According to the U.S. Energy Information Administration, the seasonal characteristics of U.S. commercial crude oil inventories are basically from January to April every year, destocked from May to September, destocked from October to November, and destocked again in December. This is mainly due to the fact that the winter period from January to April is the winter of each year, the temperature in the northern hemisphere is low, the demand is weak, and at the same time, in preparation for the summer tourist season, refineries will stock up crude oil in advance, resulting in an increase in inventories.
The summer months run from May to September, when temperatures are higher and demand is stronger in the Northern Hemisphere, and refineries ramp up production and deplete inventories, resulting in reduced inventories. In the autumn months of October-November, temperatures in the Northern Hemisphere gradually decrease, demand weakens, and refineries begin to enter a maintenance period, reducing production and increasing inventories. Winter is in December, when temperatures are cooler and demand is stronger in the Northern Hemisphere, while refineries resume production and deplete inventories, resulting in reduced inventories.
Therefore, from a seasonal point of view, every December, there will be a turning point in demand and inventories in the crude oil market, from accumulation to destocking, from weakening demand to strengthening demand, which should have formed a support for crude oil prices. But why did the crude oil market fall sharply in December this year?
The impact of the global economic situation and the movement of the US dollar
In addition to the balance between supply and demand, the price fluctuations in the crude oil market are also affected by the global economic situation and the trend of the US dollar. Generally speaking, when the global economy is strong, the demand for crude oil increases and the price rises, and when the global economy grows weakly, the demand for crude oil decreases and the price falls. At the same time, since crude oil is denominated in US dollars, when the US dollar is strong, the price of crude oil falls, and when the US dollar weakens, the price of crude oil rises.
Recently, there have been some uncertainties and risks in the global economic situation, and the recurrence and mutation of the new crown epidemic have led to a new round of lockdowns and restrictions in some countries and regions, affecting economic activities and the flow of people, and inhibiting the recovery of crude oil demand.
The US Federal Reserve accelerated the tapering of its monthly purchases of Treasuries and mortgage-backed securities from $150 billion per month to $75 billion per month, and signaled that it could raise interest rates three times next year to combat inflationary pressures, which led to a stronger dollar and put pressure on crude oil prices.
Tensions between Russia and the European Union, which led to the EU's threat to impose new sanctions on Russia, including restrictions on its energy exports, have raised concerns about oil supply disruptions and supported oil prices.
The current global economic situation and the trend of the US dollar on the crude oil market are mutually neutralized, with both negative and positive factors, resulting in a lack of clear direction for crude oil prices. However, if there is a sudden change in certain factors in the future, such as the worsening or easing of the epidemic, a sharp appreciation or depreciation of the US dollar, and an escalation or détente in Russia or Iran, then crude oil prices may fluctuate significantly and investors need to pay close attention.
Supply and demand pattern and price trend of soda ash market
Soda ash, also known as soda ash, is an important chemical raw material, widely used in glass, detergent, paper, dyes, soap and other industries. The price of soda ash is not only affected by the price of crude oil, but also by the supply and demand pattern at home and abroad.
Due to the continuous expansion of domestic soda ash production capacity in recent years, and the slow growth of demand, the market is oversupplied and the inventory pressure is greater. Especially in winter, due to the lower temperature, the demand for soda ash consumption industries such as glass and detergent decreases, and producers are reluctant to reduce production in order to maintain capacity utilization, resulting in an imbalance between supply and demand in the market and falling prices.
As the domestic soda ash price is higher than the international market, some downstream users turn to imported soda ash, increasing the competitive pressure in the domestic market. Especially this year, due to the increase in soda ash production capacity in the United States, India, Turkey and other countries, and the impact of the epidemic, the demand has led to an increase in soda ash exports from these countries and a decline in prices, which has had an impact on the domestic market.
The current supply and demand pattern of the soda ash market is not conducive to the rise in prices, but continues to consolidate at a low level. However, if there are changes in certain factors in the future, such as the rebound of crude oil prices, the recovery of domestic demand, the reduction of foreign imports, and the rise in raw material prices, then the price of soda ash may reverse, and investors need to pay close attention.
epilogue
The sharp decline in crude oil and other commodities is the result of a combination of factors, including seasonal factors, as well as factors such as the global economic situation and the trend of the US dollar, as well as the supply and demand patterns of their respective markets.
Changes in these factors will have different impacts on our lives and investments, and we need to respond and adjust according to our own situation. At the same time, we should also pay attention to some possible emergencies, such as the epidemic, geopolitics, weather, etc., these events may have an impact on the market, resulting in large price fluctuations, and we must do a good job of risk management to avoid losses.