The Global Oil Market Remains Volatile

- Nov 18, 2019-

Oil prices remain range-bound


Global growth is slowing


The IMF again downgraded global growth.

In its latest world economic outlook, the IMF cut global GDP growth in 2019 from 3.2% to 3%, the lowest since the financial crisis.

Cut the global GDP growth forecast for 2020 from 3.5% to 3.4%;

The forecast for us GDP growth in 2019 was revised down to 2.4% from 2.6%, and the forecast for us GDP growth in 2020 was revised down to 2.1%.

The GDP growth forecast for the euro area in 2019 was lowered from 1.3% to 1.2%. Among them, the GDP growth forecast for Germany in 2019 was lowered from 0.7% to 0.5%, and the GDP growth forecast for 2020 was lowered from 1.7% to 1.2%.

The GDP growth forecast for France in 2019 was lowered from 1.3% to 1.2%, and the GDP growth forecast for 2020 was lowered from 1.4% to 1.3%.

UK GDP growth forecast for 2019 was revised down from 1.3% to 1.2%;

Keep Japan's GDP growth forecast for 2019 at 0.9%.


Pmis in the us and Europe have rebounded slightly, but remain below the boom-bust line.

In October, the eurozone manufacturing PMI was 45.9, up 0.2 from the previous month. Among them, the German manufacturing industry suffered a severe decline, and the manufacturing PMI was 42.1, up 0.4 from the previous month.

The PMI for the French manufacturing sector was 50.7, up 0.6 month on month. It was little changed and fluctuated below the line of expansion and contraction.

In October, the ISM manufacturing PMI came in at 48.3, up 0.5 month on month.

Although the PMI in both the us and Europe recovered in October, Europe has been below the line of expansion and contraction since the start of the year, while the us ISM manufacturing PMI fell to 47.8 in September. This small rebound in the PMI data does not mean that the weak global macro economy has improved.


The us Labour market is strong.

Initial claims for jobless benefits fell slightly in the week ended November 2, while the labor market remained strong.

The employment component of the ISM manufacturing PMI has been below 50 for three consecutive months due to the weak manufacturing sector, and picked up slightly in October.

With 128,000 new jobs added to 152 million in October, the labor market could easily absorb the 42,000 jobs lost in the auto industry as a result of the general motors strike, and as fed chairman colin Powell said, the job market remains robust.


Fears about a global slowdown persist.

On July 31, the federal reserve cut interest rates by 25 basis points for the first time since the 2008 financial crisis, in what markets interpreted as a response to a slowing economy.

On August 29th the yield on America's 10-year Treasury note was trading upside down from two years ago. It lasted only three days and was soon back.

On September 18th the federal reserve announced another quarter-point rate cut, in line with market expectations.

On October 30th the federal reserve cut interest rates by another quarter of a percentage point in response to gloomy economic data from America and Europe in early October.

The federal reserve has cut interest rates three times in a row, further deepening fears of an economic slowdown.


Brexit and others have added uncertainty to global growth.

The world trade organisation (WTO) has cut its forecast for global trade growth from 2.6 per cent to 1.2 per cent in 2019 and from 3 per cent to 2.7 per cent in 2020 as global economic tensions remain high.

Earlier, the market confidence was boosted by the hope of phasing out the tariff increase, and crude oil prices rose in the absence of other bad news, but we still need to be wary of trump's capriciousness.

The brexit will be postponed to the end of the first quarter of next year, with the dissolution of parliament and the general election in December being uncertain, which will undoubtedly make the European economy worse.


Demand for crude oil is weak because of a slowing economy


Demand for crude oil is weak due to slowing macroeconomic growth.

In September, us refinery processing capacity was 16.91 million barrels per day, down 1 million barrels per day month-on-month and 0.41 million barrels per day year-on-year.

The processing capacity of refineries in 16 European countries was 9.86 million barrels per day, down 0.55 million barrels per day month-on-month and 0.79 million barrels per day year-on-year, far lower than the same period last year and the five-year average.

Combined with the decline in European manufacturing and industrial confidence, refinery processing in Europe unexpectedly fell in August, and the decline deepened in September, with processing falling sharply for the second month in a row.


The traditional autumn overhaul of U.S. refineries is not over yet, and crude oil continues to accumulate.

In the week of October 11, the capacity utilization rate of refineries in the United States was 83.1%, which was the low of this year, and then gradually recovered to 86%, indicating that the peak of the traditional autumn maintenance period of refineries in the United States has passed, and the capacity utilization rate will gradually recover in the future. However, it is still the maintenance period of refineries, and crude oil storage continues to be exhausted.

In addition, due to relatively high product cracking profits, gasoline and WTI cracking price difference of $11 - $14 / barrel;

Heating oil and WTI cracking price difference of $23 - $25 / barrel;

The difference between diesel and Brent cracking is $14 - $18 / BBL.


Adequate supply of crude oil


U.S. crude oil production remains high.

Us crude oil production remained at a record high of 12.6 million barrels per day for five consecutive weeks. From the perspective of Permian well production, in September, the well production rate was 109.74%, up 4.03% month-on-month, and 3,668 inventory Wells, down 49. Since August, the production rate of Permian Wells was more than 100%, and inventory Wells began to be consumed.

This indicates that as the pipeline is gradually put into use, the pressure on crude oil transportation has eased, thus lowering the transportation cost, and the supply side of us crude oil has suppressed the oil price.


OPEC oil production has rebounded.

In September, Saudi oil production fell 1.28 million barrels a day to 8.564 million barrels a day after houthi drone attacks on Saudi oil facilities, and OPEC oil production fell 1.318 million barrels a day to 28.491 million barrels a day.

At the end of September, the Saudi oil production to restore to the level before the attack, according to the market, OPEC crude oil production was increased last month in October 690000 barrels per day to 29.59 million barrels per day, Russian crude oil output of 11.23 million barrels per day, Saudi Arabia's oil supply is 9.89 million barrels per day, output of 10.3 million barrels per day, 400000 barrels per day of the gap is caused by the inventory after the attack.


Deeper OPEC+ production cuts in doubt.

Crude oil prices rose on the news as December's OPEC+ supply cut approached.

We see little change in output outside of Saudi Arabia since the OPEC+ extension in July.

Saudi Arabia is still the main production countries, but it can assign market share has compressed continuously, from attack oil facilities and quick recovery to prove its risk resistance capacity, more Saudi maintain existing market share will to achieve, and combined with the Saudi aramco ipos, preserve its existing market share and urged other countries to complete the production targets more accord with Saudi Arabia.

However, judging from the crude oil output of OPEC countries in July, August and September, the subjective reduction of output by member countries is not very strong, especially Iraq and Nigeria. The uneven pace of production reduction will weaken the willingness of countries with higher implementation rate to deepen the reduction again.


There are strong calls to extend the deal.

Most of the current low prices made people with "Dutch disease" of the national economy into recession, the IMF, in its latest world economic outlook to Saudi Arabia in 2019 GDP growth forecast from 1.9% to 0.2%, if the deepened production, takes its share in the United States, the group will be more passive, therefore, extend the production more in line with most of the members' interests.

Another source said Saudi Arabia would not change its output reduction target until march next year, and both Russia and the united Arab emirates said it was too early to discuss deepening production cuts. Oman's oil chief also said it was not necessary to deepen production cuts and might extend the agreement.


Oil prices are still above the cost line, and producers still have an incentive to produce crude.

Aramco estimates that Russian oil is one of the most expensive in the world, at more than $40 a barrel, twice as much as Saudi Arabia's.

More expensive than Russia is kazakhstan, at $46 - $51 per barrel, U.S. onshore projects at $49 per barrel, Angola and Thailand at about $50 per barrel, and azerbaijan, India and China at $55 - $60 per barrel.


Global crude oil supply is relatively stable.

U.S. crude oil production remained at a record high of 12.6 million barrels per day for the fifth week in a row, while OPEC+ saw global supplies stabilize as Saudi production recovered and Russia implemented its production cut below 100%.


Freight back to normal range


Crude oil and refined oil transportation index back to normal range.

From the point of crude oil and oil products transportation, as of November 8, crude oil transport index (BDTI) was $914, on October 14, 1958 of a sharp drop in 1044, refined oil transport index (BCTI) to 622, from October 16, 1031 a sharp drop in 409, crude oil transport index back to 5 average, refined oil transport index back to levels last year, with recent transportation pressure relief, back freight and advance the freight on the price of crude oil pull up a flash in the pan, transport index return to historical range.


Overall, U.S. oil production remain high, OPEC through stimulation to transfer production to reduce the possibility of news, but between countries agreed in December production meeting to further deepen the production is difficult, more may be urged increasing production output falls below oil producers as well as the continuation of before production.

Global crude oil supply data for October, which will be released soon, will show a pickup from September, and supply is relatively stable.

On the demand side, the global economic growth slows down, which weakens the demand for crude oil. With the good news of phasing out the tariff increase, oil prices rise due to optimistic expectations. However, we still need to be alert to trump's caprices and uncertainties remain.

In addition, with the December production cut meeting approaching, there will be a lot of news about whether to cut production or not, together with the IPO of aramco, Saudi Arabia's intention to raise oil prices is obvious.

At present, supply more than demand pattern remains unchanged for the time being, bullish and bearish interweave, crude oil price range oscillation.