Crude oil supply and demand are still variable Enterprises should pay attention to risk management

On July 5, the 2022 "Futures Everyone Talks" Commodity Mid-Year Summit Crude Oil and Chemical Industry Special Session was held
online.
She Jianyue, assistant general manager of Yide Futures, delivered a special speech
entitled "Outlook of the International Crude Oil Market under Geographical Disruption".
Analyze the current market focus and contradictions for many professional investors and industry institutions, as well as how enterprises carry out risk management
.

The supply of crude oil cannot be underestimated

In 2022, the sudden change in the international geopolitical situation, especially the Russia-Ukraine conflict and its spillover effects, plunged many areas into crisis
.
The energy industry bore the brunt, with international oil prices reaching a maximum of about $140 / barrel, and the current oil price remained at about $110 / barrel, up more than
40% from the beginning of the year.

Russia is a major oil producer and exporter in the world, and what impact will the oil embargo imposed on Russia by the United States, Europe and other countries have on the current tightly balanced world oil market? How will the supply landscape of the global crude oil market change as a result? Where is the contradiction between supply and demand in the future crude oil market?

The reporter learned at the meeting that the core focus of the current market: First, the risk of Russian oil supply interruption and its impact
.
Second, some major institutions, such as OPEC, the oil-producing country and the International Energy Agency under the OECD, have a balanced outlook
for oil supply and demand in the second half of the year.
Russia's oil supply cut has had a great impact on the market, and if you look at the current development trend of the geopolitical situation, the risk in the
later stage should not be underestimated.

"From the perspective of historical events caused by geopolitical conflicts, the imbalance between supply and demand of 3%-5% has a greater
impact on oil prices.
At present, Russia's supply reduction has reached the level of 1 million barrels per day, and the risk exposure to total oil exports from Europe and the United States is 3 million to 4 million barrels / day
.
If the supply is completely cut off, it will have a serious impact on
oil prices.
She Jianyue analyzed
.

According to the supply-demand balance forecast of OPEC oil producers and the IEA, the international energy structure under the OECD, global oil supply and demand are still in a tight balance
.
OPEC believes that in the second half of the year, oil demand is still in the process of rapid repair and growth, and Russia's shortfall, oil producing countries can not fill the gap
in the short term.
The IEA believes that due to the impact of high inflation and interest rate hikes, the growth of oil consumption in the second half of the year is weak, and Russia's output is deducted by 2 million to 3 million barrels / day, but oil supply and demand are basically balanced
.
OPEC found a reason for itself not to increase production significantly, and the IEA also found a basis
for politicians to suppress Russian oil exports.
However, the reality is that winter fuel shortages will remain a problem
without additional supply releases.

She Jianyue believes that the current market is in the fundamental situation of
"three lows and three highs".
"Three lows", that is, low spare capacity, low oil inventories, and low residual refining capacity in Europe and the United States (basically depleted); "Three highs", that is, high monthly spread, high crack spread, and high
oil price volatility.
Among them, the high monthly difference means that the monthly difference index of the two oils is positive, and the recent month is in a strong rising range
.
The forward price curves of both oils are near high and far low
.
High crack spread refers to the fact that under the background of energy shortage, the cracking spread of refined oil, especially gasoline, kerosene and diesel, has risen sharply and has fallen
recently.
He said: "Affected by the reduction in Russian refined oil exports, the supply of refined oil products in Europe and the United States is tight, the market is panicking, and the crack spread has risen, although it has fallen recently, but it is still much higher than the normal range
.
" Due to the shortage of refining capacity in Europe and the United States, the crack price spread will still be on the strong side, especially to be vigilant against the substitution of heating demand in
winter.
High volatility, lingering geopolitical risks, high oil prices, short-term bullish and negative intertwined
, increasing volatility.
”

"The core factor for this situation is the geopolitical conflict and the oil sanctions
imposed by Europe and the United States on Russia.
The risk of supply outages on the supply side lingers, and the reduction in demand is difficult to accurately estimate
.
The contradiction of high gas shortages in Europe will only exacerbate the contradictions
of global fuel shortages in winter.
Therefore, international oil prices will also oscillate at a high level, and the winter risk is greater
.
She Jianyue explained
.

Whether international oil prices have peaked

Crude oil is known as the "blood of industry", and prolonged high oil prices will have a lasting impact on
the real economy.
Recently, there have been more and more
voices about the peak of the commodity bull market.
Has the international crude oil price peaked? What is the range in which oil prices will operate in the future?

"Since the outbreak of the Russian-Ukrainian conflict, the supply of Russian oil has been the focus
of market attention.
Under the fragile supply, any expansion of supply outages will bring higher premiums to the price of near-month contracts
.
Yide Nenghua's self-built model shows that the current geopolitical premium is still at the level
of $10 per barrel.
She Jianyue said
.

He told reporters that judging from the development of the geopolitical situation since the outbreak of the Russian-Ukrainian conflict, it is difficult for international oil prices to peak
.
Although the current international oil price has climbed above $100 / barrel, the price of refined oil is much higher than the international oil price
.
European and American oil sanctions against Russia have reduced Russia's refined oil exports, while European and American refineries have long lacked investment and rich refining capacity to make up for the shortfall
.
The high crack spread of refined oil products not only exacerbates inflationary pressures, but also plays a role
in dampening demand.
"The judgment of the future international crude oil price is also based on the assumption
of many marginal conditions.
For example, the supply-side assumption of Russia's supply reduction is within 2 million barrels per day; The United States and Iran cannot reach an agreement in the short term, and the restraining effect of high oil prices on demand is limited, and the oil price fluctuation range given is 100-120 US dollars / barrel
according to WTI crude oil.
However, the market is still divided on supply and demand in the second half of the year, and it is worth watching whether there will be a shortage
of fuel this winter.
She Jianyue analyzed
.

Shanghai crude oil futures have become the third largest crude oil futures after WTI and Brent crude oil futures, and maintain close linkage
with the international market.
To reform the domestic refined oil pricing mechanism, do Shanghai crude oil futures prices have the conditions to be included in the domestic refined oil pricing evaluation mechanism?

In this regard, She Jianyue believes that from the perspective of the trading volume and holdings of Shanghai crude oil, Shanghai crude oil futures rank third in the world, indicating that Shanghai crude oil futures are successful
.
From the perspective of correlation, it is highly linked with international oil prices, but there are differences
.
From the perspective of liquidity and correlation, Shanghai crude oil futures
can be widely promoted and adopted by domestic oil trade in pricing.
As the benchmark crude oil of the region, it needs to reflect the region's own supply and demand balance, if it is completely equal to the fluctuation of the external market, it will become a "shadow price", but it will lose its own meaning
of existence.

"Shanghai crude oil futures have their own rule settings and have strong physical attributes
.
Of course, Shanghai crude oil futures are also in the process of
continuous development and improvement.
For example, in terms of domestic and foreign comparisons, the trading volume of Shanghai crude oil is mainly concentrated in the main contract, trading time and settlement price rules, which is different
from the external market.
Although it has affected the in-depth application of the industry, it still needs government support and industry participation in the later stage, and the exchange has continuously improved
its suggestions.

At present, the supply and demand situation of the international crude oil market is complex and changeable, and the market fluctuations are still full of uncertainty, how should domestic petrochemical enterprises and georefining enterprises use futures tools to manage market risks?

She Jianyue suggested that domestic oil companies cooperate with the exchange in pricing, and the domestic trade crude oil pricing benchmark is changed from the external price benchmark or index to the domestic crude oil futures and derivative price index to price, and the exchange, price evaluation institutions and enterprises can fully cooperate to build China's own benchmark crude oil price pricing index
relying on Shanghai crude oil futures.

He told reporters that enterprises applying external markets can consider using Shanghai crude oil futures as a hedging tool
more in directional hedging.
The futures market is a collection and game place for all kinds of information, strengthening market research and rationally applying futures tools for price risk management can provide guarantee for
the steady operation of enterprises.
From the perspective of futures application, it is necessary to distinguish between "strategy" and "tactics", and apply futures tools more flexibly to serve enterprise operations
.