Summary
This week (7.25-7.31), crude oil showed a trend of first suppressing and then rising. WTI's average price this week was $76.78 per barrel, a decrease of $2.68 per barrel or -3.37% from the previous week. During the week, the main factors that caused pressure on oil prices include: increasing supply of Iraqi crude oil and plans to reduce production by U.S. refineries, which led to investor concerns about the outlook for the supply-demand fundamentals of crude oil. The main factors that supported oil prices include: EIA data shows a decrease in U.S. crude oil and gasoline inventories.
Chapter 1 Review of the Trends in the International Crude Oil Market
Review of This Week's Crude Oil Futures Market
This week (7.25-7.31), crude oil showed a trend of first suppressing and then rising, with a week-on-week average price decline.
During the week, multiple bearish factors in the market news led to a drop in oil prices. In terms of supply, Iraqi crude oil supply still exceeded the OPEC+ quota, and investor concerns about the oversupply of crude oil led to a drop in oil prices. The Iraqi Oil Ministry stated in a statement that in June, the average daily oil export of Iraq increased by 0.051 million barrels. In addition, OPEC had previously stated that Iraq's excess oil production in the first half of 2024 was approximately 1.184 million barrels per day. In terms of demand, Valero Energy, the second largest refiner in the United States, stated that its 14 refineries will operate at a 92% operating rate in the third quarter, compared with 94% in the second quarter. As the summer driving season approaches its end, U.S. refineries are preparing to cut production, and investors expect U.S. crude oil demand to gradually decrease. In terms of geopolitics, two Israeli officials stated that Israel hopes to strike Iran-backed Hezbollah without triggering a full-scale war. Israel seeks to avoid causing broader conflict in the Middle East, which has reduced investor concerns about the geopolitical situation in the Middle East.
However, in the latter part of the week, the reduction of U.S. crude oil inventories supported oil prices. EIA data showed that as of July 26, 2024, the total U.S. crude oil inventory, including strategic reserves, decreased by 2.75 million barrels from the previous week to 0.808146 billion barrels, U.S. commercial crude oil inventories decreased by 3.44 million barrels from the previous week to 0.433049 billion barrels, and total U.S. gasoline inventories decreased by 3.67 million barrels from the previous week to 0.223757 billion barrels.
Review of This Week's Crude Oil Spot Market
This week, the international spot price of crude oil fell compared to the previous week. In the Middle East crude oil market, the Abu Dhabi National Oil Company (ADNOC) stated in a report released on July 29 that the crude oil exports of Murban in July 2025 will reach 1.768 million barrels per day, which is higher than the target of 1.747 million barrels per day in June 2025, a record high level. In October 2024, Murban crude oil exports will be 1.665 million barrels per day, higher than the expected level of 1.643 million barrels per day in September. In addition, in terms of price, the premium of Murban crude oil plummeted because most refineries had completed their procurement tasks. Buyers have focused on medium/heavy crude oils for September loading, such as El Sharara and Upper Zakum crude oil. Due to the attractive prices, a Singapore trader pointed out that the price of Upper Zakum crude oil for September loading had dropped to a discount of $0.15-0.20 per barrel to Murban crude oil. The supply-demand fundamentals for Upper Zakum crude are not as loose as they used to be, but the market is still weak. In the Asia-Pacific crude oil market, data from industry institutions shows that India's crude oil imports in July decreased from 4.6 million barrels per day in June to 4.52 million barrels per day, of which Russian crude oil accounted for 43.8%, slightly lower than 44.4% in June, and also lower than 44% a year ago. In May 2023, the proportion of Russian crude oil in India's crude oil imports reached a record 46%. Ship tracking data shows that Iraq was India's largest oil supplier before 2022, and by 2023, Iraq's oil supply to India was about half of Russia's oil supply, which fell to the lowest level in more than four years in July. Sources said that the Northwest Shelf condensate shipment plan for October in Australia is expected to be announced on August 5th. The production of condensate from the Northwest Shelf has been declining, and the supply has decreased. The recent monthly supply is only two ships, while the previous monthly supply was three ships.
Chapter 2 Analysis of Factors Affecting Crude Oil Futures Market
Supply and Demand Factors
This week, on the supply side, a lot of new supply from the United States and other parts of the Americas poured into the market, causing global statistical oil inventories to increase for four consecutive months to the highest level since the middle of 2021. It is expected that global oil inventories will be roughly balanced in the fourth quarter, even if OPEC+ plans to restore some crude oil production. Morgan Stanley stated that the crude oil market is currently tight in terms of supply, but most of the time in 2025, the crude oil market should be in oversupply.
In terms of demand, Fitch Ratings believes that high-frequency economic data depicts a relatively healthy picture of the energy-intensive part of the global economy, but the performance of these parts this year has generally been poor, and oil consumption has also shown a seasonal increase this quarter. Over the past four weeks, U.S. commercial crude oil inventories have continued to decline. If they continue to decrease, it will indicate that oil demand is recovering. However, whether this trend is sustainable will depend on further recovery of economic activity and changes in energy consumption patterns.
Changes in US Inventory This Week
The operating rate of US refineries continued to decline, and commercial crude oil inventories decreased for the fifth consecutive week. Gasoline inventories also fell while distillate inventories increased. The US Energy Information Administration data showed that as of the week ending July 26, 2024, crude oil inventories were 1.53% lower than the same period last year; 4% lower than the same period in the past five years; gasoline inventories were 2.13% higher than the same period last year, and 3% lower than the same period in the past five years; and distillate inventories were 8.27% higher than the same period last year, and 7% lower than the same period in the past five years. In addition, last week, the average daily crude oil imports to the United States were 6.953 million barrels, an increase of 0.082 million barrels from the previous week, and the average daily import volume of finished oil was 223.1 barrels, an increase of 0.255 million barrels from the previous week.
Fund holding situation
Speculators' net long positions in light crude oil futures at the New York Mercantile Exchange fell by 4%. According to the latest statistics from the US Commodity Futures Trading Commission, as of the week ending on July 23, all positions in WTI crude oil futures have decreased, of which total positions have fallen by 1.2% compared with the previous week, long position by 5.5%, short position by 10.4%, and net long position by 4.0%. As the decline in short positions far exceeds the decline in long positions, the long-short ratio of WTI rebounds to 4.47, an increase of 0.23 or 5.40% compared with the previous period.
As the ceasefire in the Gaza Strip continues to be expected, money is beginning to withdraw from the crude oil futures market. From the on-site funding situation, in addition to the easing of the geopolitical atmosphere in the Middle East, the market's concerns about global crude oil demand have also begun to increase. Due to the poor summer travel data in Europe and the United States, and it is nearing the end of the peak season, institutions have lowered their expectations for crude oil demand. However, the decline in long and short positions reflects the speculative sentiment, which is in contrast to the oil price. As far as the performance of oil prices is concerned, WTI crude oil futures prices continue to fall and have fallen below $80 per barrel. Looking at the future market, the oil price will correct the deviation between the speculative sentiment and the fundamentals. Under the premise of weakening expectations for the fundamentals of the oil market, WTI's short positions are expected to be increased, or its subsequent decline will be weaker than the decline in long positions.
Chapter 3 Outlook of Crude Oil Futures Market
Market outlook for next week
On the technical chart, WTI crude oil futures prices fluctuated first and then rose during the week. The main factors that boosted oil prices during the week were: first, the assassination of Hamas political leader Haniya tightened the situation in the Middle East again; second, US crude oil and gasoline inventories fell; and third, US second-quarter economic growth was stronger than expected. The main factors that suppressed oil prices during the week were: first, OPEC+ may maintain its production policy at the market monitoring meeting on August 1; second, concerns about weakening crude oil demand are not diminishing; third, the weakness of the Chinese economy may lead to a slowdown in energy demand; fourth, the end of the peak season will slow down US oil demand. As of the 31st, WTI closed at $77.91 per barrel, up $0.32 per barrel or 0.41% compared with the previous period; as of the week ending on the 31st, the weekly average price of WTI was $76.78 per barrel, down $2.68 per barrel or -3.37% compared with the previous period. From the technical point of view, the trend of oil prices tends to be stable.
On the economic front during the week, in the United States, the Federal Reserve is increasingly convinced that inflation will return to the target level of 2%, and the Federal Reserve will cut interest rates before the rate of price increases actually reaches this level. The latest data has indeed strengthened people's confidence that inflation is continuing to slow down to some extent. The annualized inflation rate in June was 3.0%, lower than the 3.3% in May. Most economists expect the first rate cut to take place in September, and Wall Street traders have raised their expectations that the Fed will lower its benchmark interest rate from its 23-year high of 5.25%-5.5%. In addition, the market also expects further interest rate cuts in November and December.
As domestic diesel prices continue to rise, Russia is considering banning diesel exports. Russia is the world's largest exporter of diesel fuels by sea, accounting for about 15% of the global seaborne diesel market. Diesel is the most exported petroleum product in Russia, with an annual export of about 35 million tons, of which nearly three-quarters are transported by pipeline. If the price rises sharply, Russia may ban diesel exports, but no decision has been made yet.
The OPEC Secretariat said that the company has received compensation plans from Iraq, Kazakhstan and Russia for their excess production from January to June 2024. OPEC Secretariat data shows that during these six months, Iraq's cumulative excess daily oil output was about 1.184 million barrels, Kazakhstan was 0.62 million barrels per day, and Russia was 0.48 million barrels per day.
Iraq has repeatedly stated that it is committed to fulfilling the decisions of OPEC and its cut-producing allied countries, and will make up for excess production. In February, Iraq promised that its daily output would not exceed 4 million barrels, but its daily output in January-June was between 4.189-4.217 million barrels. In March, Iraq said it would reduce its average daily crude oil exports to 3.3 million barrels to make up for excess production, but its average daily exports in April and May were 3.41 million barrels and 3.36 million barrels, respectively.
Investment bank Goldman Sachs said that the next US president will have very limited tools to significantly increase the oil supply in the United States. Regardless of who wins the US presidential election in November, they will have to deal with the low inventory levels of strategic oil reserves. In addition, if Trump wins, any regulatory relaxation of the US oil industry will only affect the long-term crude oil production in the United States, not the immediate supply.
On the 29th, the US Department of Energy has finalized a contract to purchase 4.65 million barrels of crude oil to supplement the Strategic Petroleum Reserve (SPR), which will be delivered in the last three months of this year.
The United Arab Emirates has always been committed to increasing crude oil product output. Abu Dhabi National Oil Company of the United Arab Emirates used ai technology to increase the production capacity of one of its offshore oil fields by 25%, as the UAE hopes to increase its total crude oil production capacity to 5 million barrels per day by 2027. In May of this year, the UAE announced that its daily production capacity has reached 4.85 million barrels, higher than the daily 4.65 million barrels at the end of 2023.
On the 31st, the Federal Reserve kept its benchmark interest rate unchanged in the range of 5.25%-5.50% for the eighth consecutive time. Powell stated that the Fed's employment and inflation risks have entered a better balance. Second-quarter inflation data increased the Fed's confidence, and it no longer needs to focus 100% on inflation. If the labor market deteriorates or inflation drops rapidly, the Fed is prepared to respond, and a rate cut in September “may be on the table.”
Golden Connections expects that next week (August 1-7), due to the poor economic data performance of major economies, the market's concern about weak crude oil product demand will continue to rise, and OPEC+ may maintain its crude oil product production policy unchanged at the market monitoring meeting on August 1, thus putting pressure on the crude oil product market. The geopolitical situation in the Middle East is still tense. Once it affects oil-producing countries, it will greatly boost the oil market. Overall, international oil prices may experience short-term fluctuations next week.
Chapter 4: Examples of crude oil futures market price differentials.
For market institutions or investors, they can pay attention to futures for crude oil product trading. Assuming that a futures institution wants to adopt an intertemporal arbitrage plan for market trading, the institution can formulate trading strategies based on the current market situation. If the month difference structure shows that WTI crude oil futures are in backwardation in the near future, and the sentiment in the forward market has declined, investors can hedge their positions by buying near-term contracts and selling far-term contracts. If crude oil futures show a downward trend as a whole and the price difference continues to widen, the profits from the forward contract will be higher than the losses from the near-term contract, and this round of trading can still maintain positive returns.
Disclaimer
The data, opinions and forecasts in this report reflect the personal judgement of the author on the day of the initial release of the report. They are based on information that the author believes to be reliable and publicly available, but the accuracy and completeness of this information are not guaranteed. The author also does not guarantee that his/her views or statements in the report will not change. In different periods, the author may issue a report inconsistent with the data, opinions and predictions of this report without notifying anyone. The information or opinions expressed in the report do not constitute investment advice for anyone, and the cases listed in this report are for demonstration purposes only. The author is not responsible for any losses incurred by anyone using the content of this report.
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