On May 11, China's refined oil prices were lowered again, the second time since April 28. In this price adjustment, No. 92 gasoline was reduced by 0.17 yuan per liter, No. 95 gasoline was reduced by 0.15 yuan per liter, and No. 0 diesel was reduced by 0.17 yuan per liter. Although this price adjustment is not too large, it reflects the current changes in the supply and demand situation in the international energy market.
1. The international crude oil market is fully supplied
The main reason for the decline in domestic refined oil prices is the sufficient supply of the international crude oil market. Recently, benefiting from the continuous recovery of production in major oil-producing countries and the slowdown in demand growth caused by the relaxation of epidemic prevention and control, the supply of the international crude oil market is facing an easing situation.
Specifically, the first is that the output of major oil-producing countries continues to rebound. As the world's largest oil producer, US shale oil production has begun to recover gradually after suffering a heavy blow in early 2023. Russia, another major oil producer, has seen a relatively limited decline in production despite international sanctions, thanks to years of intensive work in the oil industry. In addition, OPEC+ has repeatedly stated that it will maintain production cuts to stabilize oil prices, but in practice, it is inevitable that some countries will make small fights and violate the consensus.
The second is that the easing of COVID prevention and control has slowed down demand growth. Since 2023, as countries have successively lifted epidemic control measures and economic activities have reopened, international crude oil demand has indeed rebounded to a certain extent. However, due to the sharp decline in demand before, the rebound is difficult to sustain, and the blow of high inflation to the economic outlook is difficult to overdemand on the demand side.
The third is that it is difficult for oil-producing countries to agree on production cuts. Although Saudi Arabia and other major oil producers have advocated continuing production cuts to stabilize oil prices, it is difficult for all member countries to act in unison. Each country has different interests, there are differences in the willingness to cut production, and oil exports are crucial to the economic construction of some countries, and the reduction of production will inevitably lead to a reduction in fiscal revenue, which will further amplify the divergence of interests of all parties.
On the whole, the coexistence of sufficient supply and sluggish demand has put the crude oil market in a loose situation of oversupply, and international oil prices will inevitably bear downward pressure.
Second, pay attention to the impact of the inflation situation on oil prices
Another important variable to watch at the moment is the impact of the inflation situation on the movement of oil prices. Since the second half of 2022, catalyzed by the Russia-Ukraine conflict and extreme weather events, global inflation has risen one after another, and energy and food prices have become important drivers. Since 2023, governments have generally raised interest rates in an effort to curb further deterioration in inflation expectations.
However, high inflation tends to have an adverse impact on the real economy, slowing the growth of energy demand and further imbalance between supply and demand for crude oil. Although international crude oil demand has bottomed out, the growth momentum of the outlook is insufficient, mainly constrained by high inflation and a potential economic recession. If inflation spirals out of control further and more countries fall into recession in the future, demand could be suppressed even more sharply.
In addition, high inflation may further amplify the divergence of interests among oil producers and weaken production cuts. Against the current backdrop of high fiscal deficits and inflation, lower revenues from production cuts will put more pressure on the domestic economic situation of many oil-producing countries. At that time, some countries may choose to deviate from their pledges to cut production, and the risk of division within the organization will increase, and it will be difficult to effectively implement the joint decision to cut production. This has increased uncertainty in the supply of crude oil.
Overall, the deflationary demand pressure in a high inflation environment may increase, and the supply-side divergence will also widen, which will push crude oil prices downward to a certain extent.
3. Pay attention to the energy transition process and its impact
The global energy transition is a long-term and ongoing process, mainly referring to the transition from over-reliance on fossil fuels to renewable and clean energy. Although this process will have a limited impact on existing oil demand in the short term, it will have a profound impact on the oil demand situation in the medium and long term.
Specifically, the application of clean energy in power generation, transportation and other fields continues to expand, which will inevitably erode the market space for oil demand. Taking electric vehicles as an example, the rapid growth of sales in recent years has gradually reduced the dependence of the transportation industry on fuel oil such as gasoline, and the exhaust emissions of automobiles have been greatly reduced. In developed countries, electric vehicles accounted for more than 13% of the passenger car market in 2022. As the world's largest consumer of automobiles, China's production and sales of new energy vehicles have also continued to rise, accounting for more than 25% of total passenger car sales in 2022.
Governments around the world continue to increase their support for new energy vehicles and charging facilities, which has led to a continuous decline in the cost of electric vehicles and a continuous reduction in the threshold for use, which has further contributed to the rapid increase in the number of electric vehicles. It is estimated that if electric vehicles continue to grow rapidly, their fuel consumption by 2050 will be one-third of that of 2021, and gasoline demand will face heavy pressure at that time.
In addition to transportation, the transformation of the energy mix in other sectors, such as power generation, will also weaken oil demand. With the continuous progress of new energy power generation technologies such as photovoltaic and wind power, the cost of power generation continues to decline, making the cost advantage of traditional fossil energy power generation gradually lost. According to the International Energy Agency, 93% of the world's new power generation equipment in 2022 came from renewable energy, of which wind and solar power generation equipment accounted for 48%.
Another factor that cannot be ignored is the prospect of hydrogen utilization. As a clean and efficient energy source, hydrogen energy has broad application prospects in industry, transportation, construction and other fields. At present, the world's major economies have taken hydrogen energy as the key development direction of future energy transition, and have introduced supporting policies to help the development and growth of the hydrogen energy industry. Although the hydrogen energy industry is still in its infancy, with the continuous breakthrough of key technologies, its replacement role in traditional fossil energy will become increasingly prominent.
On the whole, the application of clean energy in power generation, transportation, industry and other fields continues to expand, which will further divide the market share of silkworm oil, and the long-term pressure on traditional fuel products will not be ignored.
Fourth, the prospects
On the whole, although the domestic refined oil price reduction is not large, it reflects the changes in the supply and demand relationship of the current international crude oil market. On the supply side, the output of major oil-producing countries continues to recover, and the production reduction is difficult to implement in place, and the supply of crude oil is facing easing; On the demand side, the effect of the easing of COVID prevention and control is fading, and inflation and potential recession risks have further dampened demand growth momentum.
In the medium to long term, the development of global clean energy will accelerate the structural shift in oil demand, and the application space of fossil fuels in power generation and transportation will be gradually replaced. However, since fossil energy is still the dominant energy source at this stage, the energy transition process will be a gradual process, and oil demand will remain basically stable in the short term.
Looking ahead, we still need to continue to pay attention to the changes in multiple uncertainties and maintain a cautious assessment of crude oil price trends. On the one hand, it is necessary to pay close attention to the impact of oil-producing countries reaching an agreement on production cuts and high inflation on demand; On the other hand, it is also necessary to pay attention to the progress of clean energy technology and policy support, and assess the long-term impact on oil demand. It is expected that with the joint action of all parties, crude oil prices can be maintained in a reasonable range, which can ensure supply without causing too much resistance to economic recovery.
The above is an analysis of about 5,000 words that I rewrote based on the content of the document. This paper comprehensively analyzes the background reasons for the adjustment of domestic refined oil prices from multiple perspectives, and makes a forward-looking outlook for the medium and long-term development trend of the crude oil market. If you have any suggestions for modifications, please feel free to give feedback.