On October 6th, international crude oil futures closed slightly higher. The settlement price of the main contract for WTI crude oil futures in the United States was $82.79 per barrel, an increase of $0.48 or 0.6%. The settlement price of the main contract for Brent crude oil futures was $84.58 per barrel, an increase of $0.51 or 0.6%. However, oil prices have plummeted continuously during the holiday period, with WTI and Brent crude both recording their largest weekly declines since March, with both experiencing weekly declines of 9%.
This week, oil prices have plummeted significantly. One reason is that during the holiday season, global financial markets experienced sudden changes, with a strong US dollar and a general cooling of market risk appetite. Not only did the crude oil and stock markets of risky assets decline, but gold and silver also continued to plummet. Furthermore, the supply and demand side has also changed, and the market has shifted from bullish to bearish.
On the macro level, the strengthening of the US dollar has put pressure on oil prices. This week, the US dollar continued to move at a high level, putting valuation pressure on the commodity market priced in US dollars. In addition, profit taking by investors has also exacerbated the short selling sentiment in the market. More importantly, the performance of the US economic data is eye-catching, and the market is concerned that the Federal Reserve still has expectations of raising interest rates as a result. According to a report from the US Department of Labor, non farm employment in the United States increased by 336,000 jobs in September, far exceeding economists' forecast of 170,000.
From a supply perspective, although the leaders of OPEC+, Saudi Arabia and Russia, have announced additional production cuts that will continue until the end of 2023. But the previous surge in the oil market has basically delivered the positive results. In the context of achieving a rebalancing of supply and demand in the market, there is a significant expectation of a pullback in the oil market in the event of any turbulence. On Friday, it was announced that Russia has lifted most of its diesel export bans, which has had an impact on the tight supply market. Specifically, the country has lifted its ban on diesel exports transported through pipelines to ports, on the condition that companies sell at least 50% of their diesel production to the domestic market. According to statistics, in 2022, nearly three-quarters of Russia's 35 million tons of diesel exports were transported through pipelines, and the lifting of the ban has relaxed supply expectations. This measure has put strong pressure on oil prices.
At the same time, there are still main reasons for limiting the upward trend of oil prices on the demand side. Government data released by the US Energy Information Administration (EIA) on Wednesday showed a sharp decline in gasoline demand in the United States. The supply of finished automotive gasoline, which represents demand, has dropped to its lowest level since the beginning of the year last week. The global economy is affected by the high interest rate environment brought about by the Federal Reserve's interest rate hike cycle, and the future demand outlook is uncertain, reigniting market concerns about economic recession. However, during the 11th period, China's travel consumption performance was strong, which to some extent played a bottoming role in oil prices.
SunSirs crude oil analysts believe that in the short to medium term, the deep downward momentum of the oil market is not significant. On the one hand, Saudi Arabia, Russia and other countries are still reducing production, and supply side performance is tight. Crude oil inventories are also at historical lows, and supply will still play a stabilizing role in the future of oil prices. However, the demand side market is facing significant pressure. In the short term, gasoline consumption in the United States is sluggish, and inventory accumulation will hinder oil prices. In the medium to long term, the expectation of the Federal Reserve raising interest rates will continue to bring negative feedback to demand expectations. Overall, in the fourth quarter of the oil market, the supply and demand sides are intertwined, and the game between supply and demand will continue. The probability of oil price stagnation increases, with a focus on maintaining range fluctuations.
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