Is the world still short of crude oil?

In the early morning of June 17th, the Federal Reserve released the negative news of interest rate increase in 2023 after the end of the rate-setting meeting, the crude oil price fell back, at the same time, the technical point of view, the weekly crude oil line appeared a certain divergence trend. Therefore, for the future trend of crude oil price, the market appears a certain divergence, but the author considers a number of factors affecting the price, the rise of crude oil in the second half of the year is still worth expecting.

Demand still outstrips supply

OPEC, led by Saudi Arabia, accounts for 40% of the world's crude oil production 50% of the world's exports. If the other 11 non-OPEC countries in OPEC+, including Russia Mexico, account for more than 60% of the world's crude oil production 70% of the world's exports. It can be said that oil has rebounded several times over the past year, OPEC+ 's decision to cut production has played a leading role. Under the agreement reached in April 2020, OPEC+ will still cut production by 5.7 million BPD between now next April. The above decision by OPEC+ will continue to be a fundamental factor for the oil trend in the context of a supply gap in the international oil market.

In recent months, global crude inventories have been drawing down at a rapid pace, meaning that demand remains short of supply, despite the group's increase of 350,000 barrels in May 600,000 barrels in June, Saudi Arabia's increase of 600,000 barrels. Going into July, OPEC+ will increase production by 440,000 b/d Saudi Arabia will recover 400,000 b/d, but WIT Brent July-August futures contracts are generally priced at $5-6 / b higher than June, suggesting that the market sees tighter supply beyond July if existing production increases are maintained.

Net imports of U.S. crude oil increased

In recent years, the American factor is a big variable in the crude oil market, which is also the most important factor leading to the price war of crude oil. With capital spending severely underfunded by last year's outbreak the Biden administration's tendency to restrict some offshore Wells for environmental reasons, it is unlikely that U.S. oil production will increase significantly for the rest of this year. As of June 11, the number of RIGS in the U.S. was 461, less than half the number for the same period in 2018 2019, according to Baker Hughes. In the week ended June 11, U.S. oil production was 11.2 million barrels per day, down 7% a year earlier, according to the EIA. Extrapolating on a weekly basis, U.S. crude oil production fell more than 10 percent in the first five months of 2021; U.S. GDP rose to an annualized rate of 6.4% in the first quarter, the unemployment rate fell to 5.5% in May. As the economy improves, consumption of crude oil will steadily increase. U.S. net crude oil imports stood at 3.21 million b/d in May, the second-highest level since September 2019. At the same time, the U.S. Department of Energy released refined oil inventory data is also a strong case. Gasoline stocks stood at about 243 million barrels as of June 11, down 5 percent a year earlier, while kerosene, heating oil distillate fuel stocks were 223 million barrels, down 16 percent a year earlier.

In addition, summer as a traditional gasoline diesel consumption peak season, July - September this year will be an obvious oil destocking stage. At that time, the United States will no longer give crude oil bulls "plugging", but is likely to become a crude oil consumption market in the second half of the "dark horse".

No need to worry about Iranian oil supplies

Iran has been an important focus for bears in the oil market this year, but the current situation is that the negotiations are slow due to Iran's insistence that the US return to the nuclear deal "no more, no less" the serious partisan disputes in the US. Even if the United States meets Iran's conditions, it will take a long time to go through the domestic approval process resolve legal obstacles erected under the Trump administration. According to the latest news on June 17, the French Foreign Ministry said that "major differences" remain in the negotiations on a nuclear deal with Iran. As a result, it is expected to be at least several months before an agreement can be reached again the ban on Iranian crude exports lifted.

Moreover, even if Iran resumes exports, it is as scary as it might seem. According to OPEC, Iran's pre-sanctions oil production peaked at around 3.8 million b/d, but has since recovered to 2.5 million b/d in May, leaving room for an increase of 1.3 million b/d. Based on its experience since 2015, it took Iran about a year a half to grow 2.8 million barrels in the month the deal was reached to 3.8 million barrels. That said, there is little reason to worry about Iranian crude hitting the market in the second half of the year, at least.

In addition to the above major factors, China India's crude oil imports in the second half will likely exceed market expectations. The author believes that the oil market is still in a destocking cycle in the second half of the year, there is a lot of room for imagination. A rise to $90 / BBL is completely out of the question.

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Source: International Petroleum Network