International Oil Market New Year Achieves a "Good Start"

The rebound of the two international benchmark oil prices reflects a reality: although the new crown pneumonia epidemic is still spreading around the world, energy consumption levels have not been greatly affected, especially in Europe and the United States, oil and gas supplies are still very tight
.
As inventory levels continue to decline, the market's expectations for OPEC+ production increases are increasing, and investment banks generally expect oil prices to continue to climb
during the year.

On January 4, OPEC+ held a monthly meeting to cut production, and oil producers agreed to maintain a monthly increase of 400,000 b/d for the seventh consecutive month
.
Affected by this news, the price of Brent crude oil closed at $80.
5 / barrel on the day; U.
S.
WTI crude reached $77.
58 a barrel, up 2%
from the previous session.

The scale of production increase remains unchanged

In winter, natural gas and coal prices rose sharply, and countries such as Europe and the United States fell into severe inflation due to soaring energy costs, which dragged down the economic recovery to a certain extent
.
In the face of the call for rapid production increase from oil consuming countries such as India and Japan, and the pressure from the United States to release production capacity, "OPEC+" still adheres to its own gradual production increase route
.

Industry analyst S&P Global Platts pointed out that the "OPEC+" production reduction alliance led by Saudi Arabia and Russia, concerns about Omicron are gradually fading, believing that the impact of this variant is "mild and short-lived", so although there may still be an oversupply in the first quarter, in view of the optimistic demand trend, it decided to continue to maintain the current scale of production increase
.

Affected by this, the price of Brent crude oil climbed to $80 / barrel for the first time in a month, and further rose to 80.
8 US dollars / barrel on January 5, and the price of U.
S.
WTI crude oil also reached 77.
85 US dollars / barrel
.
Since mid-December 2021, the price of Brent crude oil has increased by more than 10%.

Since August 2021, OPEC+ has been increasing production by 400,000 b/d per month, and has held monthly production cuts to assess the trend of the oil market until production returns to pre-pandemic levels
.

International oil prices rebounded strongly in 2021, but with the recurrence of the new crown pneumonia epidemic, Brent crude oil prices fell from a high of $85/b in October 2021 to $65/barrel
in early December 2021.
Subsequently, the United States took the lead in releasing the Strategic Petroleum Reserve to ease inflation and boost oil prices, but this is only a drop in the bucket for international crude oil demand, and it plays more of a signal role in oil price adjustment, and the right to determine the trend of the oil market is still in the hands of
"OPEC+".

Hedge funds are buying oil again on a spree

As concerns about Omicron waned, hedge funds began buying oil again
.
At the end of November 2021, the market panic about Omicron caused a large number of crude oil futures to sell, and international oil prices recorded their biggest one-day decline since April 2020
.

As of Dec.
28, 2021, hedge funds purchased 54 million barrels of crude
oil in the six most actively traded oil futures and options contracts, data compiled by Thomson Reuters.
Oil contract bulls in the final week of 2021 posted the biggest increase since August 2021, suggesting that funds are increasingly optimistic
about oil price bullishness.

Clearly, factors such as the steady increase in OPEC+ production, the US restrictions on shale oil production, and waning pandemic fears have prompted hedge funds to be more optimistic about the outlook for the oil market in 2022 than a month ago, so they are rebuying oil futures and options contracts
at the fastest pace in the past 4 months.

Oil price network pointed out that although the United States and other countries recently hit new crown pneumonia cases hit new highs, the market's panic about Omicron began to weaken, which brought some encouragement
to oil prices.
ING noted that the OPEC+ move brought some comfort to the market, indicating that they are confident
in the demand outlook in the coming months.

In fact, once there is a critical reversal of the epidemic, oil demand will rebound much faster than expected in 2022, and the supply gap will widen
further.
In this regard, JPMorgan analyst Christyan Malek believes that "OPEC+" may release more production
later this year.

Oil prices could rise by double digits this year

"The infection rate of new coronavirus pneumonia in the United States, the United Kingdom and other countries is still rising, and restrictions are also in place, but the optimism in the oil market is real.
"
Tamas Varga, senior analyst at PVMOil Associates, a major crude oil broker, said, "The oil market in 2021 proves that despite the challenges of the road to fighting the epidemic, we are capable of defeating the epidemic
.
”

Such sentiment has led to more bullish expectations
for oil prices.
UBS noted that crude oil and petroleum product prices are benefiting from oil demand rising above 2019 levels, and Brent crude prices are expected to rise to $80-90/b
in 2022.

Goldman Sachs believes that Omicron has limited economic impact, and it is expected that the price of Brent crude oil will remain around $85 / barrel in 2022 and 2023, and may even exceed $100 / barrel
.
Blackstone also boldly predicted that international oil prices will rise to $100 per barrel in 2022, citing the inability of OPEC+ and U.
S.
shale oil to meet demand growth
this year.

JPMorgan Chase & Co.
also holds a similar view, believing that factors such as the global economic recovery, the decline in crude oil inventories and the slow recovery of production capacity will push international oil prices to double digits
this year.

However, there are also views that there is still a lot of uncertainty about the future trend of
the international oil market.
CNBC News Network said that in 2022, the oil market will continue to be affected by geopolitics, and events such as the confrontation between Russia and Ukraine, and the Iranian nuclear negotiations may have phased progress, which will affect the trend of
international oil prices.

JPMorgan expects the latter could add 1.
4 million b/d of additional capacity
in 2022 if U.
S.
sanctions are eventually lifted.

"Over the past year, oil inventories have fallen and demand has outstripped supply, and this year the situation is starting to change, and it is expected that no later than the second quarter of this year, oil inventories will begin to increase
at an accelerated rate globally.
" Ed Morse, global head of commodity strategy at Citi, said, "Therefore, we believe oil prices are likely to remain under pressure
during the year.
”