Why is crude oil stagnant relative to other commodities?

Since 2020, the performance of crude oil has significantly lagged other commodities. Considering that the demand for crude oil has been targeted by the epidemic, the financial attributes on the demand side are relatively weak, and the lagging increase in oil prices is reasonable. At the beginning of the epidemic, the real economy has not been fully repaired, and countries have ample liquidity stage, metals perform well; in the later stage of the epidemic, when the real economy recovers well and liquidity tightens, oil prices may show some performance. However, considering the crude oil supply side, the elasticity of shale and the remaining OPEC capacity, the probability of a moderate rise in oil prices is high, and it is not appropriate to expect skyrocketing.

Risk warning: on the demand side, the vaccine effectiveness and side effects are unknown, leading to the risk of slower suppression of the epidemic; on the supply side, the risk of OPEC internal differentiation, and the risk of shale oil production rebounding faster than expected; on the macro side, if oil prices appear to be rapid Rising, the risk of pressure on liquidity.

1. Crude oil has stagnated relative to other commodities

Since the outbreak of the epidemic in 2020, many commodity prices have reached new highs, while crude oil prices have hovered at mid-to-low levels. Based on December 31, 2019, soybeans, copper, gold, and iron ore have the deepest declines of -14%, -25%, -3%, -12%, respectively, while Brent crude oil has the deepest decline of -70%, and WTI has the deepest decline It once fell to a negative value; the current price levels of soybeans, copper, gold, and iron ore are up 43%, 27%, 21%, and 58% respectively compared to the end of 2019, and Brent crude oil is -16% compared to 2019 .

2. Demand attributes: crude oil has been targeted by the epidemic, and the entity attributes are stronger than financial attributes

First of all, the nature of oil demand is travel demand, which is the target of targeted attacks by the epidemic. Of the global oil demand, 60-70% is transportation demand, and about 20% is chemical demand. Among the transportation needs, gasoline, diesel, aviation kerosene, and marine fuel oil correspond to commuting and family travel, trucks and construction machinery, business travel, and international trade, respectively.

Secondly, compared to metals, oil has weaker financial properties and stronger physical properties. Non-ferrous metals represented by gold and copper have strong financial attributes, and their prices are closely related to currency liquidity and the US dollar. Oil is a liquid commodity, and terminal demand is closely related to the real economy. At the beginning of the epidemic, the real economy has not yet been fully repaired, and countries have ample liquidity stage, non-ferrous metals performed well; in the later stage of the epidemic, the real economy recovered well and liquidity tightened stage, and oil prices may show some performance.

In the electrified future world, where renewable energy will replace oil, where does oil go? -Passive attack, replacing metal and natural materials. A realistic path is that as gasoline and even diesel are replaced by electric vehicles, the price of oil may remain at a mid-to-low level for a long time, and the price of chemical raw materials will fall. Combined with China's technological breakthroughs in some mid-to-high-end materials, the price of chemical materials is expected to take the next step, replacing metal materials (such as the automotive lightweight field) and natural materials (such as chemical fiber instead of cotton, synthetic rubber instead of natural rubber).

3. Supply elasticity: shale and OPEC remaining capacity

Unlike metals (including non-ferrous and black), the supply side is significantly affected by the epidemic, and oil production is hardly affected by the epidemic. Shale oil will reduce drilling and completion activities or even shut down wells in stages due to the impact of early ultra-low oil prices, leading to shrinking shale oil production. The supply capacity of other resource types is almost unaffected because of low attenuation. OPEC took the initiative to assume the responsibility of balancing the market, especially Saudi Arabia, in exchange for a large number of production cuts in exchange for the market to rebalance. This will inevitably lead to an increase in OPEC's remaining capacity. Now the agency no longer announces OPEC's remaining capacity. It can be estimated from the change in output that OPEC's remaining capacity may be as high as 7 million barrels per day. With the depletion of inventories and the recovery of oil prices, this part of the remaining capacity may return to the market.

Summary: Since 2020, the performance of crude oil has significantly lagged behind other commodities. Considering that the demand for crude oil has been targeted by the epidemic, the financial attributes on the demand side are relatively weak, and the lagging increase in oil prices is reasonable. At the beginning of the epidemic, the real economy has not yet been fully repaired, and countries have ample liquidity stage, non-ferrous metals performed well; in the later stage of the epidemic, when the real economy recovers well and liquidity tightens, oil prices may show some performance. However, considering the crude oil supply side, the elasticity of shale and the remaining OPEC capacity, the probability of a moderate rise in oil prices is high, and it is not appropriate to expect skyrocketing.