Summary

This week (8.1-8.7), crude oil showed a trend of first suppression and then rise. The average price of WTI this week was $74.24 per barrel, down $2.54 per barrel or -3.31% from the previous week. During the week, the main factors that caused oil prices to under pressure were: poor U.S. economic data, global stock market declines, and increasing market risk aversion sentiment. The factors that provided bullish support for oil prices include: EIA data showed a decrease in U.S. crude oil inventories.

Chapter 1 Review of the Trends in the International Crude Oil Market

Review of This Week's Crude Oil Futures Market

This week (8.1-8.7), crude oil showed a trend of first suppression and then rise, and the weekly average price fell compared to the previous week.

During the week, bearish pressure from the economic side led to a decline in oil prices. Recent U.S. non-farm employment data showed that both the unemployment rate and PMI data were lower than expected, causing investors' concerns about the outlook for the U.S. economy to further heat up. The U.S. Institute for Supply Management data showed that the PMI for U.S. manufacturing purchasing managers fell 1.7 percentage points to 46.8% in July, the lowest level since November 2023. U.S. Department of Labor data showed that U.S. non-farm jobs increased by 114,000 in July, lower than the market expectation of 175,000. The unemployment rate in July increased by 0.2 percentage points to 4.3%, the highest level in nearly three years. In addition, affected by poor economic data, global stock markets generally fell, risk aversion sentiment in the market increased, and the downward pressure on crude oil futures, as a risk asset, further intensified.

But on the other hand, the reduction of U.S. crude oil inventories in the later period of the week supported oil prices. EIA data showed that as of August 2, 2024, the total U.S. crude oil inventory, including strategic reserves, decreased by 2.992 million barrels to 0.805154 billion barrels from the previous week, and the commercial crude oil inventory in the United States decreased by 3.728 million barrels to 0.429321 billion barrels from the previous week.

Review of This Week's Crude Oil Spot Market

This week, the average price of international crude oil spot fell compared to the previous week. In the Middle East crude oil market, Saudi Arabia increased its official selling price of crude oil for September to the Asian market for the first time in three months, but reduced its official selling price of crude oil for September to other regions. Saudi Aramco raised its official selling price for crude oil sold in the Asian market in September by $0.10-$0.20 per barrel. The official selling price of Arab Light crude oil rose by $0.20 per barrel to Oman/Dubai average price premium of $2.00 per barrel, reaching a two-month high, but the increase was lower than market expectations. At the same time, Saudi Aramco lowered the official selling price of all crude oil for September in the U.S. market by $0.75 per barrel, and the official selling price of Arab Light crude oil fell to an ASCI premium of $4.10 per barrel. In addition, Saudi Aramco lowered the official selling price of all crude oil sold to northwest Europe and the Mediterranean by $2.75 per barrel in September, with the official selling price of Arab Light crude oil being ICE Brent premium of $1.25 per barrel and ICE Brent premium of $1.15 per barrel, respectively. In addition, after Saudi Arabia raised its official crude oil selling price for September in the Asian market earlier this week, Abu Dhabi National Oil Company (ADNOC) also raised its official selling price for September crude oil. ADNOC raised the official selling price of Murban crude oil for September to $83.80 per barrel and set the official selling price of Upper Zakum crude oil for September at $0.05 per barrel higher than the official price of Murban crude oil. The official selling prices of Qatari and Iraqi crude oil will be announced soon, and the loading schedule for Middle East crude oil from September to October is expected to be released early next week. In the Asia-Pacific crude oil market, Vietnam PV OIL Co., Ltd. announced plans to sell two ships, each with 0.3 million barrels, of Chim Sao crude oil shipments for September 29-October 3 and October 22-26, respectively. The tender will end on August 12.

Chapter 2 Analysis of Factors Affecting Crude Oil Futures Market

Supply and Demand Factors

This week, on the supply side, due to the rebound in Russia's domestic refinery operating rate to a six-month high, the country's marine transportation crude oil shipment volume has now dropped to the lowest level since January and is likely to continue at least until the end of August. Some institutions predict that Russia's marine transportation crude oil flow in July and August will remain at around 2.7 million barrels per day, but will increase slightly to 2.9 million barrels per day in September, when Russian refineries are expected to begin traditional autumn maintenance. Due to the repeated drone attacks in Ukraine that disrupted domestic refineries, exports fell from 3.6 million barrels per day in April and May to 3.7 million barrels per day, a considerable decrease.

On the demand side, the path of global oil demand recovery is still uncertain, and the imbalance in economic recovery may continue to affect demand prospects. The market needs to closely monitor global economic indicators and energy consumption trends in order to better predict changes in demand. As the slowdown in economic growth leads to a decline in fuel demand, China's oil imports and refinery operating rates are both trending lower than in 2023. Some institutions believe that although China's economic data is still disappointing, they are beginning to see a larger decline in global oil inventories, which indicates that supply growth lags behind demand growth.

Changes in US Inventory This Week

The refinery utilization rate in the United States has increased slightly, and commercial crude oil inventories have decreased for the sixth consecutive week, but gasoline and distillate inventories have increased. According to data from the U.S. Energy Information Administration, as of the week of August 2, 2024, crude oil inventories were 3.66% lower than the same period last year and 6% lower than the same period in the past five years. Gasoline inventories were 4.01% higher than the same period last year and 2% lower than the same period in the past five years, and distillate inventories were 10.70% higher than the same period last year and 6% lower than the same period in the past five years. In addition, last week's average daily crude oil imports into the United States were 6.224 million barrels, a decrease of 0.729 million barrels from the previous week, and the daily average of imported finished products was 210.4 barrels, a decrease of 0.127 million barrels from the previous week.

Fund holding situation

Speculators reduced their net long positions in light crude oil futures on the New York Mercantile Exchange by 11.1%. According to the latest statistics from the U.S. Commodity Futures Trading Commission for the week of July 30th, all positions in WTI crude oil futures have been declining for two consecutive weeks, and the decline has widened significantly. Among them, the total open interest fell by 1.2% compared with the previous period, the long position fell by 11.2% compared with the previous period, the short position fell by 11.9% compared with the previous period, and the net long position fell by 11.1% compared with the previous period. As the decline in short positions exceeds that of long positions, the long-short ratio of WTI continued to rebound to 4.50, an increase of 0.03 or 0.77% compared with the previous period.

This week, as market concerns about the demand outlook for crude oil continued to escalate, funds began to withdraw from the crude oil futures market. From the perspective of on-site capital, although the poor performance of economic data in China and the United States has increased investors' concerns about the demand outlook for crude oil, the tense situation in the Middle East has supported the oil market to a certain extent, thereby making the shrinkage of long and short positions slightly exceed the shrinkage of long positions. From the perspective of oil prices, WTI crude oil futures prices have begun to weaken, falling below $75 per barrel. Looking ahead, as the peak season for oil consumption in Europe and the United States begins to come to an end, market expectations for the oil market fundamentals will further weaken, which will intensify the bearish sentiment for oil prices. However, the expectation of interest rate cuts in the United States and the continued geopolitical risks will still provide some support for the oil market.

Chapter 3 Outlook for the Crude Oil Futures Market

Market outlook for next week

On the technical chart, WTI crude oil futures prices fluctuated during the week. The main factors that boosted oil prices during the week were: the continuing tension in the Middle East; the force majeure encountered by production at Sharara oil field; and the crude oil inventory reduction by EIA exceeded expectations. The main factors that suppressed oil prices during the week were: the rebound of the US dollar exchange rate; the global stock market's sell-off; concerns that the US economy may be on the verge of a recession; and the Fed's continued maintenance of interest rates for the eighth consecutive time. As of the 7th, WTI closed at $75.23 per barrel, down $2.68 per barrel or 3.44% from the previous period; as of the week of the 7th, the average weekly price of WTI was $74.24 per barrel, down $2.54 per barrel or 3.31% from the previous period. From a technical perspective, oil prices are bearish.

On the economic front this week, the US service provider's new business index improved to the highest level in a year. The report shows that while the economy continues to grow, the ability of companies to pass on rising costs is limited. The input price composite index, including rising transportation costs and wage growth, climbed. Even so, the increase in output prices slowed to a six-month low. From the perspective of output, growth has become worrying, while the service industry has further strengthened and the manufacturing industry has fallen into a slump. The PMI preliminary data implies an ideal situation at the beginning of the third quarter, with the economy growing steadily and inflation easing.

This week, on the 1st, OPEC+ hinted at the monitoring meeting that oil supply would remain unchanged, and the tentative plan to resume production that was suspended earlier would begin in the next quarter. The Organization of the Petroleum Exporting Countries and its allies have agreed to gradually resume production that was suspended by the end of 2022 to boost oil prices. The daily production in the fourth quarter will increase by about 0.54 million barrels.

Saudi Aramco raised the official price of Arab light crude oil for Asian customers in September by 20 cents per barrel, specifically the Oman-Dubai benchmark price plus $2, which is lower than the 50-cent increase predicted by traders and refiners. The price of Arab light crude oil for Europe was lowered by $2.75, the largest drop since the height of the COVID-19 pandemic.

On the 1st, the OPEC Joint Ministerial Monitoring Committee (JMMC) meeting maintained the oil production policy unchanged and gradually resumed production that was suspended by the end of 2022 to boost oil prices. The daily production in the fourth quarter will increase by about 0.54 million barrels. In addition, the chairman of the meeting insisted on asking member states to commit to the compensation plan.

On the 6th, the US Department of Energy's Office of Petroleum Reserves announced a tender to supply 1.5 million barrels of oil to the Bayou Choctaw Reserve in January 2025, and an additional 2 million barrels of oil will be transported to the Bryan Mound Reserve and delivered in January 2025.

JLC expects that the pressure from the global economic outlook and expectations for crude oil demand will continue to depress the crude oil market next week. Although the tense geopolitical situation in the Middle East remains, its power to support the oil market is limited because it has not yet spread to oil-producing countries. It is necessary to pay attention to whether relations between Iran and Israel will deteriorate next, and once Iran joins the battle, it may boost the oil market, otherwise it will be difficult to stop the weak momentum of the oil market. Overall, next week's international oil prices will be mainly fluctuating.

Chapter 4: Examples of crude oil futures market price differentials.

For market institutions or investors, they can pay attention to crude oil futures to participate in the crude oil market. Assuming that a certain futures institution currently wants to adopt an inter-period arbitrage scheme for market trade, the institution can formulate a trading strategy according to the current market situation. Due to the large fluctuations in the current crude oil prices, risk can be effectively controlled through price difference arbitrage. If the monthly price difference structure shows that the WTI crude oil futures price difference between near and far periods continues to widen, and the forward market sentiment has fallen, investors can hedge their positions by buying near-term contracts and selling far-term contracts. If the current price difference continues to expand, this inter-period arbitrage trade 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.

This report reflects the personal views of the author and does not represent the research and judgment of JLC or ZCE. JLC or ZCE do not guarantee the accuracy and completeness of the report. The report is only transmitted to specific clients and the copyright belongs to JLC. Without the written permission of JLC, any institution or individual may not copy, reproduce, quote or reprint the report in any form.

The market involves risks, and investment needs to be cautious.