International crude oil prices fluctuate sharply

Due to the oversupply concerns of the crude oil market regaining the absolute upper hand, and the financial market premium squeezed out, international crude oil futures prices fluctuated sharply. Prices fell sharply, and Brent fell below the $40/barrel support level.

In terms of prices, the closing price of WTI crude oil futures on the New York Mercantile Exchange was 37.3 US dollars/barrel on September 10, 2020, which was a drop of 2.47 US dollars/barrel, or 6.21%, compared with last Friday. On September 10, the closing price of Brent crude oil futures on the Intercontinental Exchange was US$40.06/barrel, a drop of US$2.60/barrel, or 6.09%, compared to last Friday. In the four trading days from September 7 to September 10, the average closing price of WTI was US$37.37/barrel, a decrease of US$4.24/barrel or 10.18% from last week. The average closing price of Brent was US$40.66/barrel, a decrease of US$3.74/barrel or 8.43% from last week. The four-day average spread of Brent and WTI was US$3.29/barrel, an expansion of US$0.49/barrel from last week.

As the epidemic eases and blockades are lifted in most regions of the world, fuel demand is certainly recovering. But the problem is that there is a cyclical difference between demand recovery and procurement intensity. Driven by the ultra-low oil price and super long-term premium structure in the second quarter, oil consuming countries and large traders represented by the Asia-Pacific market have conducted excessive overbought operations.

Although the US epidemic curve has slowed down, the Asia-Pacific and European regions have experienced repeated epidemics. The reduction in the scale of crude oil purchases from the Asia-Pacific region, especially China, and the outbreak of the epidemic in India have put pressure on the crude oil market sharply increased.

At the same time, as the oil-producing countries relaxed their production cuts as planned, the core oil-producing countries all saw a large-scale increase in crude oil production in August. In addition, the ineffective implementation of compensation cuts in countries such as Iraq has weakened the support of the production cut agreement to the bottom of oil prices. OPEC, the representative of traditional oil producing countries, is facing the dual pressure of weakening demand in the Asia-Pacific and U.S. markets, while the U.S. internal crude oil and refined oil consumption is entering a traditional declining season. During this cycle, U.S. crude oil and refined oil inventories have begun to reverse the previous downward trend. The utilization rate of refinery equipment has dropped sharply, adding to market concerns. The prospect of excess crude oil has broken the "relative balance in a low demand scenario" that has continued in the international oil market since May.

Based on the consideration of low refining profit margins and shrinking demand. Saudi Arabia, the world's largest oil exporter and the most powerful in the oil cartel, lowered the price of crude oil exports to all destinations. And the magnitude exceeded expectations. Saudi Arabia lowered the October export price of its benchmark crude oil, Arabian Light Crude Oil, to Asia by US$1.4/barrel, which is a discount of US$0.5/barrel from the average Oman/Dubai price. This range far exceeds market expectations. In addition, Saudi Arabia set the October selling price of Arabian light crude oil for the United States at a premium of US$1.05 compared to the US Sour Crude Oil Index (ASCI), which was a decrease of US$0.6/barrel from September.

Saudi Arabia set the official sales price of Arab Light crude oil for customers in northwestern Europe in October at a discount of US$2/barrel to the settlement price of ICE Brent crude oil, which was a decrease of US$0.2/barrel from September. Saudi Arabia set the official price of Arabian light crude oil sold to the Mediterranean in October at a discount of $1.6 per barrel. Saudi Arabia's aggressive reduction in crude oil prices this time has made the market worried that a new round of price wars will begin. Therefore, the energy leaders of the former core oil-producing countries expressed their willingness to regain market share. The last time the collapse of oil prices began with a price war, Saudi Arabia’s actions suddenly tightened the market’s nerves, and panic sent oil prices down sharply.

This week's data continue to verify signs of declining confidence. US CFTC holdings data show that as of the week of September 1, the proportion of US speculative fund long net positions to total holdings fell to 23.8%, continuing to refresh the lowest level since the week of June 23. The recent slow recovery of U.S. economic data has led market operators to gradually recognize the fact that economic recovery in the post-epidemic era may be far below expectations. The U.S. financial market remains strong and sustainable despite the Fed's aggressive release of water. The recent U.S. stock market The drastic decline affected the rapid squeeze out of the crude oil financial premium.

With the approaching of the refinery maintenance season, the US oil industry data tends to be negative, and it is difficult to find solid support in the short-term market. Market attention will be focused on whether OPEC+ can respond quickly. This is the only way to quickly calm market sentiment. The OPEC+ meeting next week will be the top priority. Analysis believes that the excessive optimism of oil-producing countries for demand recovery and the excessive optimism of risky markets for economic recovery will be stabilized at this stage. Part of the financial premium of international oil prices will continue to be squeezed out, and short-term crude oil futures prices in Europe and the United States still have a downside of US$1 to US$2 per barrel. However, oil-producing countries still have the opportunity to boost oil prices through stronger compensation for production cuts and adjustments to new production targets. Although demand recovery is slower than expected, the world's fuel demand is actually recovering. This means that it is difficult for oil prices to fall into the ultra-low oil price region again.