In early April, Iran and Israel launched military attacks on each other, Ukraine continued to attack Russian refineries, OPEC+ maintained its production cut strategy and urged countries to improve the implementation rate of production cuts, and multiple positive factors pushed Brent futures to exceed $91 per barrel for a time. Since then, as the Iran-Israel conflict has shown signs of easing, international oil prices have fallen slightly. However, the instability of the geopolitical situation still brings important support to international oil prices. In April, the average prices of Brent and WTI crude oil futures were $89.09 per barrel and $84.61 per barrel, respectively.
The factors affecting the recent trend of international oil prices mainly include the following aspects: First, from a fundamental point of view, the global oil market is tight in supply and demand, and inventories are low, which basically supports international oil prices. First, oil demand has picked up seasonally. Usually the first quarter is the seasonal trough of global oil demand, the second quarter gradually rebounds, the third quarter enters the seasonal demand season, the second and third quarters of the world oil demand is expected to increase by 1.1 million barrels per day, 900,000 barrels per day respectively, the seasonal recovery of demand is generally good for oil prices. Second, OPEC+ production cuts limit supply growth. At the JMMC meeting in early April, OPEC+ announced that it would maintain the current production cut policy and urged countries to increase the compliance rate of production cuts. OPEC+ "leader" Saudi Arabia's fiscal revenue is more sensitive to oil prices, and it is expected that OPEC+ will most likely maintain the strategy of "limiting production and guaranteeing prices" in the later period, and continue to support oil prices from the supply side. It should be noted that although OPEC+ production cuts limit supply growth, the increase in production of non-OPEC+ oil producers led by the United States will still drive the growth of world oil supply. Non-OPEC+ oil supply is expected to increase by 1.2 million barrels per day and 600,000 barrels per day respectively in the second and third quarters, and the world oil supply in the second and third quarters will increase by 1 million barrels per day and 700,000 barrels per day respectively in the second and third quarters, respectively, while OPEC+ maintains the current production cut policy. Third, global oil inventories remain low. Global observable crude oil inventories are now at about 52 million barrels, the lowest since at least 2016, and OECD commercial oil inventories are about 2.77 billion barrels, still 65.1 million barrels below the average of the past five years. With demand rebounding and supply controllable, the world oil market is expected to remain tightly balanced in the second and third quarters, and global inventories will remain low.
Second, from the perspective of the geopolitical situation, the Iran-Israel conflict has been suspended, but the Palestinian-Israeli, Russian-Ukrainian conflicts are complex and difficult to solve, and the geopolitical premium will still exist. After Israel's attack on the Iranian embassy in Syria, Iran retaliated against Israel with restraint, and Israel's counterattack was more like a political statement. However, it should be noted that Israeli Prime Minister Benjamin Netanyahu has approved the Israeli army's ground action plan in Rafah, the Palestinian-Israeli negotiations have not yet made substantial progress, the Houthis continue to disrupt Red Sea transportation, Russia and Ukraine attack each other's energy facilities, the geopolitical situation is complicated, and the support of geopolitical risk premiums on international oil prices will continue to exist.
Finally, from a financial point of view, the Fed's interest rate cut expectations have been delayed, and high interest rates and strong US dollars still suppress international oil prices. U.S. inflation has risen again, with CPI rising 3.5% year-on-year in March, up 0.3 percentage points from February. At present, the market generally expects that the Federal Reserve may postpone the interest rate cut until September, and interest rates will remain high in the short term, and the US dollar is likely to remain strong, which will continue to put some pressure on international oil prices.
In the short term, the seasonal rebound in oil demand, OPEC+ production cuts limit supply growth, market fundamentals are undersupply, and oil inventories are at a low level, and tight fundamentals play an important role in supporting oil prices. At the same time, the geopolitical situation is still the core factor determining the short-term oil price trend, and the geopolitical premium support has weakened after the suspension of the Iran-Israel conflict, but it is still necessary to be vigilant against the escalation of the situation in the Middle East and Russia and Ukraine to bring more than expected impact on international oil prices.
Author's Affilications:China National Petroleum Corporation Economic and Technical Research Institute
Contact: 010-64523406 Submission email: [email protected]
Editor: Liang Guohua
Proofreader: Meng Ying
Review: Chang Fei Lu Xiangqian
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