On April 19, the price of international crude oil futures fell sharply, and Brent fell more than 5%. The settlement price of the main contract of WTI crude oil futures in the United States was US $102.97/barrel, down US $5.24 or 4.84%; The settlement price of the main contract of Brent crude oil futures was US $107.25/barrel, down US $5.91 or 5.22%. The main reason was that the International Monetary Fund (IMF) lowered its economic growth expectations and warned of rising inflation, which raised concerns about the demand outlook, and the higher dollar put pressure on the valuation of oil prices.
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Previously, oil prices rose for four consecutive trading days. According to comprehensive calculation, WTI crude oil rose by 10%. Mainly affected by the war between Russia and Ukraine, the risk of oil supply shortage has increased significantly. Earlier, the market also heard that the EU may draft a bill banning the import of Russian oil, superimposing the force majeure factors of oil producing country Libya, resulting in the interruption of crude oil export, which exacerbated the bullish expectation of the market. However, after a round of strong rise, oil prices ushered in a sharp decline on Tuesday, mainly due to the return of market concerns to the demand side.
IMF lowered economic growth expectations, triggering demand concerns
On April 19, the International Monetary Fund (IMF) released its new world economic outlook report, which predicted that the global economy would grow by 3.6% in 2022, down 0.8 percentage points from the previous forecast. The reason is affected by the Russian Ukrainian war and warned that inflation has become a “clear and urgent danger” in many countries The pessimistic outlook exacerbated the pressure on the dollar to stay at a two-year high. Once the news came out, the oil price fell rapidly. Although the supply side expectation is still positive, under the conflict situation between Russia and Ukraine, it is superimposed on the macro level: the global inflation expectation may speed up the pace of the Fed’s interest rate hike. At present, the fragile global economy makes the market lack of confidence, thus suppressing the market risk appetite.
US crude oil inventories fell unexpectedly last week, according to the American Petroleum Institute (API) on Tuesday
US crude oil inventories unexpectedly fell sharply last week, while gasoline inventories unexpectedly rose, according to the American Petroleum Institute (API). As of the week of April 15, crude oil inventories decreased by 4.5 million barrels. Gasoline inventory increased by 2.9 million barrels and distillate oil inventory decreased by 1.7 million barrels.
In addition, the outlook of Tuesday’s US Energy Information Administration (EIA) report also shows that US oil inventories may increase significantly. On average, the nine analysts interviewed estimated that U.S. crude oil inventories increased by about 2.5 million barrels in the week ended April 15.
OPEC production in oil producing countries is lower than expected, and there are still risks in future supply
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On April 12, the organization of Petroleum Exporting Countries and its allies (OPEC +) lowered their expectations for global crude oil demand this year in their monthly report, mainly due to the adverse impact of the conflict between Russia and Ukraine. The report said that this year’s global crude oil demand was 100.5 million barrels / day, down 400000 barrels / day compared with previous estimates. OPEC lowered its global economic growth forecast for 2022 to 3.9% from 4.2% a month ago, and believed that it could be further reduced. This reduction took into account the impact of the Russian Ukrainian conflict and public health events.
Out of its pessimistic judgment on future demand, the organization’s production increase policy has been relatively conservative, and there have been some difficulties in the realization of production in some countries. For example, Libya’s exports have been interrupted recently due to the local political turmoil. Citing a report of the OPEC + alliance reported by Reuters, OPEC + production in March was 1.45 million barrels / day lower than the target because Russia began to reduce production after the West imposed sanctions due to its invasion of Ukraine. The report shows that according to third-party sources, Russia’s oil production in March was about 300000 barrels / day lower than the target of 10.018 million barrels / day.
Outlook
Comprehensively considered, in the medium term, the long and short risks in the oil market are intertwined, the supply side is still affected by the situation in Russia and Ukraine, which will boost the oil price, and the oil price will still be shaken by the strong expectation of supply contraction. However, in the short term, the IMF lowered its economic expectations, and OPEC also lowered its economic expectations. Short term pessimism may still affect oil prices, and there are certain risks in the high market. It is suggested that practitioners should be cautious.
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