EIA refined oil inventories increased sharply, U.S. oil fell slightly in the short term, Goldman Sachs Xiaomo is optimistic about the oil price prospects

On Wednesday (November 24) during the New York session, at 23:30 Beijing time, data released by the U.
S.
EIA showed that the US commercial crude oil inventories excluding strategic reserves fell less than expected in the week ended November 26, but refined oil inventories and gasoline inventories increased more than expected
.
After the EIA data, the price of U.
S.
crude oil fell slightly by $
0.
5 in the short term.

The recent release of strategic crude oil reserves by the Omicron variant virus and the United States has put heavy pressure on oil prices, but given the current imbalance between supply and demand in the global market, Goldman Sachs and JPMorgan Chase remain optimistic about the outlook
for oil prices.
The market focus is currently on this week's OPEC+ meeting
.

EIA crude inventories fell less than expected

Specific data showed that the EIA crude oil inventory changes in the United States for the week ended November 26 actually decreased by 909,000 barrels, compared with an expected decrease of 1.
45 million barrels and a decrease of 1.
017 million barrels
in the previous month.

In addition, EIA gasoline inventories in the United States for the week ended November 26 actually increased by 4.
029 million barrels, down 332,000 barrels expected and 603,000 barrels in the previous month, and EIA refined oil inventories in the United States for the week ended November 26 actually increased by 2.
16 million barrels, expected to decrease by 800,000 barrels and decreased by 1.
968 million barrels
in the previous month.

The EIA report showed that domestic crude oil production in the United States rose by 100,000 barrels per day to 11.
6 million barrels per day
last week.
U.
S.
crude exports rose 99,000 b/d to 2.
704 million b/d
last week.
The four-week average supply of U.
S.
crude products was 20.
723 million b/d, up 7.
1%
from a year earlier.

Commercial crude excluding strategic reserves imported 6.
604 million b/d last week, up 168,000 b/d
from the previous week, according to the EIA report.
Commercial crude inventories, excluding strategic reserves, fell by 909,000 barrels to 433.
1 million barrels, down 0.
2 percent
.

The EIA report showed that EIA gasoline inventories in the United States increased by the largest since the week of June 4, 2021 in the week ended November 26, ending a seven-week downward trend
.
Domestic crude oil production in the United States for the week ended November 26 was the highest
since the week of May 8, 2020.
The U.
S.
Strategic Petroleum Reserve stood at 602.
6 million barrels last week, the lowest level
since May 2003.

The Omicron variant may pose a risk to global economic growth, putting heavy pressure on oil prices

On November 25, South Africa's National Institute of Communicable Diseases warned that the discovery of a new variant of B.
1.
1.
529, Omicron, is expected to be more transmissible than Delta
.
Fears of the epidemic alarmed investors and caused international oil prices to fall
rapidly.

Fitch and Moody's, the two major international rating agencies, said on Monday that the Omicron variant could hurt global economic growth prospects while also pushing up prices
.
Previously, the World Health Organization called the risk of a surge in infections caused by the variant "extremely high.
"

Elena Duggar, deputy general manager of Moody's, said the Omicron variant would pose a risk to global growth and inflation, especially during
an already tight supply chain, high inflation and labor market worker shortages.
The virus variant could also hit
consumer demand during the upcoming holiday travel and consumption season.

Elena Duggar said that if the new variant affects global market risk appetite, it will put further financial pressure
on debt issuers with significant financing needs.
For example, emerging market countries that rely on borrowing in international markets may face higher refinancing risks
.

Duggar said past experience has shown that the spread of the Omicron variant can be difficult to stop
even with some restrictions on international travel.
If the new variant causes another wave of coronavirus infections to increase, the most affected economies will be those with lower vaccination rates, greater reliance on tourism, and less ability to provide fiscal and monetary policy support to offset the growth impact of a new wave of infections
.

Fitch said it was too early
to factor the impact of the virus into its economic growth projections until more was known about the transmissibility and severity of the Omicron variant.
We currently believe that the likelihood of another large-scale synchronized global recession of the first half of 2020 is slim, but rising inflation would complicate
the macroeconomic response if the new variant spreads widely.

Fed Chairman Jerome Powell also believes that the Omicron variant and the recent increase in coronavirus cases pose a threat to the US economy and increase uncertainty about the inflation outlook
.
Powell noted that it is difficult to predict the duration and impact of supply constraints, but it now appears that the factors driving higher inflation will continue into next year
.

More countries closed their borders on Monday, casting a shadow
over the economy recovering from the pandemic.
Industry sources said large airlines moved quickly to protect their hubs by restricting passenger travel from South Africa, fearing that the spread of the new variant could trigger restrictions
on destinations other than the directly affected areas.

U.
S.
President Joe Biden urged Americans not to panic about the Omicron variant and said the U.
S.
is working with pharmaceutical companies and will develop contingency plans
if new vaccines are needed to stop the spread of the variant.

Biden said the U.
S.
will not reimpose lockdowns to combat the spread of the Omicron variant, saying Thursday would unveil winter strategies and urging people to get vaccinated, get booster shots and wear masks
.

An infectious disease expert from South Africa said it was too early to say whether the Omicron variant would cause more severe symptoms than previous variants
, but it did appear to be more contagious.

Ahead of the OPEC+ meeting, the market expected that the organization might abandon the production increase

On Wednesday, December 1, local time, the Organization of the Petroleum Exporting Countries and its ally OPEC+ will hold a ministerial meeting
.
Traders are commenting on the risks
it poses to global demand.

The Joint Ministerial Oversight Committee (JMMC) will meet from Tuesday to Thursday, and OPEC+ will meet on the same day, when the decision
is expected to be announced.
An OPEC+ source said: "We need more time to understand this new variant and whether we need to overreact.

Last week, the Biden administration officially announced that it would release 50 million barrels of strategic oil reserves to curb the continuous rise in oil prices; Japan, South Korea, India, the United Kingdom and other major oil consumers will also cooperate to release their respective strategic oil reserves
.
OPEC+ will also analyze the potential impact
of these oil-consuming countries' reserve release plans at the meeting.

Most importantly, at this meeting, oil producers will decide whether to continue to increase oil production
as originally planned.
Last year, OPEC, led by Saudi Arabia, cut oil production
along with producers such as Russia as the outbreak disrupted oil demand.
OPEC+ has gradually resumed its oil production and is scheduled to increase production by 400,000 b/d
in January.

An OPEC+ representative, who asked not to be named, revealed that Saudi Arabia will propose at the OPEC+ alliance meeting on December 1 and 2 to temporarily abandon the original arrangement
of raising production by 400,000 b/d in January.

At present, the market still widely expects OPEC+ to abandon the original production increase plan, mainly for the following reasons: First, OPEC's advisory body, the Economic Council, previously issued a forecast that the Biden administration's release of the Strategic Petroleum Reserve (SPR) may significantly increase the surplus size
of global oil inventories.

If 66 million barrels of oil were injected into the market during the two-month period, the global oil surplus would increase by 1.
1 million b/d in January and February next year to 2.
3 million b/d and 3.
7 million b/d
, respectively, according to a document.
Some representatives of OPEC and its partners said they could cancel plans to increase production scheduled for January if the U.
S.
and other countries deploy inventories that exceed market demand
.

This month, OPEC+ rejected U.
S.
calls to speed up oil supplies, sticking to plans to
gradually increase them.
A few days ago, Paul Donovan, chief economist of UBS Global Wealth Management, analyzed that because of the fear that OPEC+ would respond to the United States and many countries selling reserves in a more radical way such as reducing production, oil prices did not fall but rose
after many countries announced the joint release of strategic reserves.
He believes that the United States leading many countries to dump reserves is a political gesture
to express the dissatisfaction of oil consumers to OPEC.

Secondly, at the same time, major Russian crude oil producers are close to full production
.
Major Russian producers had said earlier this month that they had been raising output as OPEC+ gradually eased production restrictions, and production is now near full capacity
.
Currently, Russian producers are expanding production
mainly by resuming wells that were closed during the pandemic.
To continue ramping up production next year, Russian producers may need to speed up drilling of new wells
.

Saudi Arabia has recently repeatedly warned that the global crude oil market will return to oversupply next month, while oil demand faces the threat of a resurgence of the
new crown epidemic.

Russia does not see the need to hastily adjust production

Russian Deputy Prime Minister Alexander Novak said on the 29th that Russia believes that there is no need for major oil-producing countries to urgently adjust their crude oil production strategies
due to the spread of the new crown variant virus Omicron strain.

Novak said we need to monitor and observe carefully.
.
.
Decisions
should not be rushed.
A spokesman for Novak said that Russia will have in-depth discussions with other major oil-producing countries about the market situation and the measures that need to be taken
in the near future.

To allow more time to assess the impact of the Omicron strain on crude oil demand and prices, the virtual meeting of the Joint Ministerial Monitoring Committee of non-OPEC producers such as the Organization of the Petroleum Exporting Countries (OPEC) and Russia has been postponed from December 30 to December 2 to discuss crude oil production plans
for January next year.

Affected by the negative news such as the report of Omicron cases in South Africa and other countries, investors are worried about the prospects of economic recovery, international oil prices fell sharply on the 26th, and the price of crude oil futures on the New York Mercantile Exchange and the price of London Brent crude oil futures fell by more than 10%.

This is the largest one-day drop in the two benchmark oil prices since April 2020
.

As the pandemic hit oil demand, OPEC and non-OPEC producers reached an agreement last year to cut production by nearly 10 million barrels per day, equivalent to 10%
of global production.
In April, OPEC met with non-OPEC producers and decided to gradually increase oil production
from May.
At the July meeting, major producers decided to raise their total monthly production by 400,000 barrels per day from August, while agreeing to continue holding monthly meetings to assess market conditions and decide on next month's production levels, aiming to end production cuts by the end of September 2022
.

Novak said on the 29th that no oil producer has proposed to adjust the current production increase strategy
.
Analysts said OPEC and non-OPEC producers may pause production
increases after the gradual release of crude oil reserves and the possibility of new "lockdown" measures affecting demand.

The U.
S.
energy envoy said more strategic oil reserves could be released

Ahead of the upcoming OPEC+ meeting, the Biden administration's energy envoy reiterated that the United States is ready to release more crude
from the Strategic Petroleum Reserve if necessary.

On Monday, November 29, Eastern time, Amos Hochstein, a senior adviser to the US State Department, said that the Biden administration is ready to release more oil reserves to curb oil prices
.

Previously, Japan, South Korea, India, the United Kingdom and other major oil consumers called the "anti-OPEC+ alliance" by some analysts will also coordinate to release their respective strategic petroleum reserves, and it is expected that these oil consuming countries will jointly release about 70 million barrels of strategic petroleum reserves
.
This could increase the global oil surplus by 1.
1 million b/d in January and February next year to 2.
3 million b/d and 3.
7 million b/d
, respectively.

The OPEC Economic Committee released a forecast that the Biden administration's release of the Strategic Petroleum Reserve may significantly increase the size of the surplus of global oil inventories, and if the United States and other countries deploy inventories that exceed market demand, OPEC+ may cancel the production increase
plan originally scheduled for January.

Hochstein believes that the world is currently experiencing a very fragile economic recovery and needs to address what are the underlying factors
that could threaten this recovery.

Remember, this is not a release of 50 million barrels, 30 million barrels is a short-term exchange where companies and traders can take the oil now and return it
within a predetermined time.
This means that the Strategic Petroleum Reserve will be replenished, so we have more flexibility to do so
again in the future if the need arises.
I think we want to do something that has an impact on the market, but also the ability and flexibility that allows us to do it
again when the U.
S.
economy needs it.

Last Tuesday, the U.
S.
government officially announced that it would release 50 million barrels of strategic petroleum reserves to curb the continued rise
in oil prices.
Of these, 18 million barrels have been approved by Congress for direct sale, and another 32 million barrels are short-term swaps that are agreed to be returned to the Strategic Petroleum Reserve
in 2022-2024 after oil prices stabilize.

Days after the U.
S.
energy envoy's speech, OPEC and its allies will meet to discuss their response to the Omicron variant
.
OPEC appears increasingly inclined to pause its plans to increase production as the new strain triggered their biggest drop in oil prices in more than a year last week
.

OPEC+ had planned to increase production by 400,000 b/d in January in order to gradually restore production
that was halted during last year's pandemic.
Analysts say OPEC has reason to be cautious about
oil demand.

The first meeting of the Vienna talks ended Iran, saying that the nuclear deal would not be resumed without lifting sanctions

On November 29, local time, the first meeting of the 7th round of Vienna negotiations aimed at resuming the Iran nuclear agreement ended
.
Iran's Foreign Ministry said in an official statement issued after the meeting that Iran stressed that the lifting of sanctions against Iran is the main topic of this round of negotiations, and as long as the US limit sanctions against Iran exist, resuming compliance with the nuclear agreement is just
a slogan.

According to Iran's Mehr News Agency, the statement said that Iran's deputy foreign minister and chief negotiator Bagheri Kani stressed the need to lift all inhumane and oppressive US sanctions against Iran, and the need to take the lifting of sanctions against Iran as the main topic of
this round of negotiations.
Carney said at the meeting that as long as U.
S.
extreme sanctions against Iran exist, the claims of some Western countries to revive the Iran nuclear deal are empty words
.

After the meeting, Carney said in an interview that all parties agreed to first make the issue of lifting sanctions the main concern
of the Joint Commission on the Iranian Nuclear Agreement.
On the morning of November 30, local time, the relevant working group meeting will begin to review the issue of lifting sanctions against Iran, "This is an important achievement, all relevant parties participating in the meeting agree with Iran's reasonable demands, they clearly stated that they want to confirm the status of illegal US sanctions against Iran, and this should be discussed
immediately.
" Of course, other topics will be discussed and decided.
"

Xiaomo believes that OPEC+ controls supply, and oil prices are expected to rise to $150

JPMorgan's latest report this week judged that oil prices will continue to rise, with the bank estimating that Brent crude prices will rise to $120/b in 2022 and $150/b
the following year as OPEC+ members control supply and defend higher oil prices.

This means that the Biden administration's release of the Strategic Petroleum Reserve has basically had little impact on oil prices, as the initial reaction of oil prices after the administration injected 50 million barrels of crude oil into the market last week demonstrated
.

Although the Omicron variant of the new coronavirus hit oil prices on Friday, investors feared that potential country lockdowns would reduce travel and thus lower demand for oil, JPMorgan Chase believes this oil price volatility is an overreaction
.

JPMorgan said in the report that we believe the market may have overestimated the impact
of the recent Omicron variant on oil prices during the US holiday season.
The bank reasoned that even if the Omicron variant spreads, there will not be any slowdown
in holiday travel.

With the arrival of Thanksgiving, the United States has also entered an intensive holiday season, and then Christmas and New Year's Day are the peak time
for American people to visit relatives and friends and travel.

As oil demand is likely to remain stable, supply will remain a key driver
of higher oil prices in the coming years.
Given OPEC+'s firm grip on oil prices, JPMorgan believes that Brent crude prices will reach $120/b in 2022 and may even exceed $150/b in 2023, implying a possible 100%
increase from current levels.

Xiaomo explained that the real spare capacity of OPEC+ next year is expected to be 2 million b/d, which is lower than the consensus expectation of 4.
8 million b/d
.
Although OPEC+ is expected to need to pause its 400,000 b/d production increase for three months in the first half of 2022 to achieve market balance, OPEC+ will struggle to achieve a monthly increase of more than 250,000 b/d even if production increases are resumed due to insufficient investment in the sector
.

We believe OPEC+ will defend oil prices
by adjusting the pace of production growth to keep inventories low, market balance and reservoir management well.

Xiaomo also said that increased supply from U.
S.
oil producers may help put downward pressure on oil prices, but the number of U.
S.
oil rigs is about half that of 2019, and investment in the sector has been slow
since oil prices briefly turned negative when the pandemic hit in 2020.
This is the reason for the rise in oil prices, at least until U.
S
.
oil production reaches pre-pandemic levels.

Goldman Sachs considers the worst-case scenario for the new virus to believe that oil prices have collapsed too much, at least at $80

Financial blogger ZeroHedge said the recent plunge was caused by concerns about widespread lockdowns and renewed travel bans, but then a series of technical factors, including reduced trading volume during the Thanksgiving holiday in Europe and the United States and quantitative trading chasing downward momentum, exacerbated the sell-off
.

Damien Courvalin, commodity strategist at Goldman Sachs, has been insisting for the past 4 months that oil prices will reach a target of more than $90 in the coming months
.
During the recent oil price crash, he said the market expects demand to be reduced by 4 million barrels per day
over the next three months.

Aviation demand for oil is only 1 million barrels per day higher than last winter, when cases and hospitalizations were much higher and vaccines were not widely administered
.
While the worst-case scenario is a possible return to last winter's levels, Goldman's current assumption is that demand will fall by 500,000 barrels
per day by the second quarter of next year.

In addition, in addition to aircraft return restrictions, some limited maneuvering restrictions could reduce global demand
by 500,000 bpd.
In this case, Goldman Sachs believes that OPEC+ will suspend its production increase for at least a month, while it is expected to continue until April
2022.

In other words, with all of the above, the impact of a new massive COVID shock in 3 months will be 700,000 b/d, down at most $2 from Goldman's current price forecast of $
90.
But now the price of Brent crude has plummeted below that level of $12, with arbitrage space of about $10 per barrel
.

Negatively impacted by the new variant of the virus, and taking into account the strategic reserves released this week, Goldman Sachs expects oil prices to fall by another $2/b overall, up to $5/b
from the previously forecast of $85/b in 21Q4 to 22Q1.

That is, even in the worst case, oil prices should remain at $80 a barrel
.
At the current closing price, there is still a lot of room
for arbitrage.