INE crude closed slightly higher, supported by concerns about OPEC capacity constraints

On Monday (July 4), Shanghai crude oil prices closed up 10.
5 yuan, or 1.
51%.

The main contract 2209 closed at 706.
6 yuan / barrel, up 10.
5 yuan / barrel
.
Oil prices closed higher, mainly due to the market's belief that OPEC production capacity is limited and supply still cannot meet market demand, supporting oil prices
.

Fundamentally, the G7 meeting further sanctions against Russia, the supply of Russian crude oil is limited, and OPEC production increase is limited, and Libyan supply may be seriously affected, supporting oil prices
.
However, concerns about interest rate hikes and economic slowdown by central banks around the world have limited oil prices higher
.
From a technical point of view, the oil price K-line basically remained near the moving average, and various technical indicators fell into a neutral range
.
Investors can maintain range-bound operating ideas to trade
.

China and overseas news

The cartel is again below the crude oil production target

OPEC's crude output fell in June from May due to production shutdowns in Libya and Nigeria, and the 10 cartel producers bound by the OPEC+ deal only raised their total output by 20,000 b/d
last month.
Combined output from all 13 OPEC members — including Libya, Iran and Venezuela, which are not bound by the deal — fell 100,000 b/d month-on-month to 28.
52 million b/d
in June.
Under the OPEC+ deal, OPEC-10 aims to boost its output by 275,000 b/d
in June.
Instead, they boosted production by only 20,000 b/d
.

Saudi Arabia, the United Arab Emirates (UAE) and Kuwait increased their combined output by 130,000 b/d
in June, according to a survey of OPEC and OPEC shipping data providers and sources.
However, the survey found that even Saudi Arabia, OPEC's largest producer and the world's largest crude exporter, produced 100,000 b/d
below its quota.

Saudi Arabia's June target is 10.
663 million b/d

Libya, which is not part of the OPEC+ deal, saw the biggest drop in production in June, followed by Nigeria, which is estimated to have fallen by 80,000 to 100,000 b/d
last month.
According to the survey, output and exports from Iraq, OPEC's second-largest oil producer, also fell
.
The survey and other shipping data suggest that OPEC continues to underperform on its collective production targets, with market supply well below the monthly nominal increase claimed by the OPEC+ group
.
In May, OPEC+ was estimated to be behind its overall output target of 2.
695 million b/d
due to Western sanctions against Russia and capacity constraints from several other producers who were unable to meet their quotas.
Earlier this week, OPEC+ confirmed a 648,000 b/d increase in production in August, which would effectively cancel all production
cuts that began in May 2020 in response to a slump in demand.

The world's largest independent crude oil trader: China's economic recovery is expected to support oil prices

Vitol Group, the world's largest independent oil trader, said soaring global fuel costs had begun to wreak havoc on global oil consumer demand, but China's economic recovery was expected to support demand
on the other hand.

Mueller, head of Vitol Group's Asia operations, said global consumers are being hit
by rising prices for gasoline, diesel and other petroleum products.
Mueller said there is very clear evidence that high prices have caused economic pressures, which some call demand destruction, not just the price of oil, but also the price of
liquefied natural gas.

China's economic recovery will continue to support oil demand
.
Mueller also believes that if the impact of the new crown epidemic on China gradually weakens, China's economic activity and oil demand will continue to recover, and fuel prices are likely to remain at current levels
.

Vitol CEO Russell Hardy said last month that he expected China's oil consumption to increase by 1 million barrels per day
by the end of 2022.
Mueller also does not expect China to significantly increase fuel export quotas
anytime soon, despite the ability of China's independent refiners to boost output.

Croft, chief commodity strategist at RBC, made a similar argument last week, saying that demand for crude oil is expected to continue to strengthen as China's economy recovers from the impact of the coronavirus pandemic, which will further exacerbate the tight situation
.

The Russian Defense Minister announced the liberation of Luhansk, and Zelensky vowed to retake Lisichansk

According to Russian media reports on July 3, Russian Defense Minister Sergei Shoigu announced on Sunday that the last Ukrainian troops had been driven out of the "Luhansk People's Republic"
.
A press release issued by the Russian Defense Ministry said that he had reported to President Putin on the "liberation" of the entire territory of
Luhansk.

Shoigu said that Russian troops and the Luhansk Armed Forces have taken full control of the city of
Lisichansk.
RT reported that since the Ukraine crisis in 2014 led to Luhansk's declaration of "independence" and the establishment of the "Luhansk People's Republic", the city is the last major city
in the Luhansk region under the control of the Kiev side.

According to the report, Ukrainian President Volodymyr Zelensky admitted on the evening of the 3rd that after Russia's fierce attack, the armed forces commanded by Kiev had withdrawn from Lisichansk in the eastern Donbas region, but vowed to regain control of the region
with the help of long-range weapons delivered by Western countries.

Zelensky said in a video speech released that night: If the commander of our army withdraws personnel from certain points on the front line where the enemy has the greatest firepower advantage, and this also happens in Lisichansk, it will only mean one thing
.
That is, we will go back again, relying on our tactics, on the increase
in the supply of modern weapons from the West.

Zelensky said that the Russian side will concentrate its firepower on the Donbass front, but Ukraine will use long-range weapons to fight
back.
The fact that we protect the lives of our soldiers and our people plays an equally important role
.
We will rebuild the walls, we will reclaim the land and protect the people above all else
.

OPEC's production in June was lower than expected

OPEC production in June was announced, according to statistics, crude oil production in OPEC-10 countries in June increased by only 20,000 barrels / day from the previous month, of which Nigeria expected to reduce production, Iraq unexpectedly reduced production by 50,000 barrels / day, and Saudi Arabia only increased production by 50,000 barrels / day to 10.
55 million barrels / day, an increase lower than expected
.
Due to Libya's repeated force majeure in June, the monthly output fell by 170,000 b/d to 610,000 b/d, and the output of the 13 OPEC countries fell by 100,000 b/d in June to 28.
52 million b/d.

The German government reportedly plans to charge all gas consumers a fee to help suppliers share the rapidly rising import prices
.
According to industry and German government sources, the legislation is expected to be passed in parliament on July 8

The EIA expects China's crude oil inventories to reach an all-time high

According to the public data of the General Administration of Customs, from 2011 to 2021, China's total crude oil imports have doubled, accounting for about 20% of
global offshore crude oil imports.
Although China's total offshore crude oil imports from January to May this year fell by 2.
2% year-on-year due to the epidemic, from the statistics of importing countries, China's imports from Russia increased by nearly 51.
4% compared with the same period last year, reaching 42.
6 million tons in May, an increase of 13.
0%
year-on-year.

Niels Rasmussen, an analyst at BIMCO, said: Russian crude accounted for 13% of China's seaborne crude imports in May, up from 9%
earlier this year.
Meanwhile, Chinese imports from Brazil, Saudi Arabia and Kuwait were lower
than in April.
”

While seaborne and total crude imports are down 2.
2 percent and 1.
7 percent, respectively, year-on-year, the U.
S.
Energy Information Administration (EIA) estimates that China's local crude oil production is up 3.
4 percent year-on-year, while consumption is down 0.
9 percent
year-on-year.
All in all, crude inventories have been building up due to falling domestic demand, and export quotas in 2022 were 37% lower than in 2021, hitting a 10-month high in May
.

The EIA still expects China's oil consumption to rebound from June to the end of December, up 2.
7%
year-on-year.
The agency also forecasts a 1.
2%
increase in the full year compared to 2021.
This bodes well for crude tanker demand, but risks associated with global economic growth remain
.

With the entry into force of the EU ban on Russian oil and petroleum products, changes in crude oil trade patterns are expected to accelerate
for the remainder of 2022.
"Russia will seek to increase exports to India and China, which may replace exports from the Persian Gulf, Brazil and West Africa, which will be diverted to Europe," Niels said, "which could increase tanker transportation demand
depending on the final trading model.
" ”

Institutional perspective

Guotai Junan Futures Research Report Crude Oil: Focus on downside risks

Last Friday night, oil prices ushered in a restorative rebound, and the overall momentum
remained volatile.
In our view, while Europe's energy shortage remains acute, the core contradiction in short-term trading in the market has changed, that is, more to price the downside of the economic downturn in the energy crisis in overseas economies than the energy shortage itself
.
Judging from the core inflation data of some European countries and regions, there has been a clear inflection point, raising market concerns
about the prospects for recession.
Considering that the Fed has not relaxed its slowdown in raising interest rates for the time being, and the negative expectations of tightening and recession are stronger than in June, there is still a risk of further decline in short-term oil prices, WTI may fall below $100 / barrel, SC may fall below 650 yuan / barrel

Looking forward to the second half of 2022, the overseas tightening cycle will accelerate, and there should not be too many doubts
about the risk of a trend peak in commodities.
After the continued low level of chemical profits in the first half of the year, the downward trend of non-ferrous metals since April and the sharp decline in black since June, crude oil was under greater
downward pressure on the plate rotation.
In addition, considering that the path of Russian crude oil flow to the Asia-Pacific region has been fully opened, the market may be suppressed by the marginal negative of Russian oil southward for a long time after the EU stops 90% of Russian crude oil imports before the end of the year, especially the seasonal peak season in the second half of the Asia-Pacific region may
be diluted.
Therefore, in the long run, if oil prices can stabilize and rebound from late June to early July, there may still be a stronger adjustment in the third quarter, and the potential downside may be 20%-30% higher than the high point in the first half of the year (the two oil in the outer market may touch below $100 / barrel, and SC may touch below 600 yuan / barrel).

Of course, in the second half of the year, the uncertainty of the crude oil market at both ends of supply and demand is still high, and it is strategically recommended to focus on various arbitrage strategies

Galaxy futures crude oil: short-term oil prices show a wide range of volatility

From a fundamental point of view, the trend of crude oil demand is differentiated, the recession expectations in Europe and the United States are strong, the increase in demand in the second half of the year is relatively limited, the main driving force for demand growth in the third quarter is China, and the fourth quarter also needs to rely on non-OECD countries to make efforts, the supply side because most OPEC members increase production less than expected, while idle production capacity is low, the overall state is tight, and the downside of oil prices is limited
.
Recently, crude oil has a strong monthly difference in recent months, and the performance at the real end is acceptable, and short-term oil prices show a wide range of fluctuations, and it is necessary to pay attention to the impact
of geopolitical news on prices.

Shanghai Medium-Term Futures: Oil prices recovered as supply worries continued

The futures price of the main contract of crude oil fluctuated to the upside
overnight.
French President Emmanuel Macron said on Monday that the UAE and Saudi Arabia, OPEC's two main oil exporters, were already extracting as much oil as possible and could barely increase production
.
Crude inventories in the U.
S.
Strategic Petroleum Reserve fell to 497.
9 million barrels, the lowest level
since April 1986.
OPEC+ said it would recover
all production cuts it had cut since 2020 until August.
Supply worries are intertwined
with fears of a U.
S.
recession.
On the fundamental front, EIA data showed that U.
S.
commercial crude inventories, excluding strategic reserves, rose by 1.
956 million barrels to 419 million barrels
in the week ended June 10.
Cushing, Oklahoma, crude oil inventories stood at 22.
6 million barrels, down 800,000 barrels
from the previous week.
On the supply side, U.
S.
crude oil production was 12 million b/d in the week ended June 10, up 100,000 b/d
from last week.
OPEC will increase production by 648,000 b/d
in August.
On the demand side, the IEA believes that the global oil demand growth forecast for 2022 has been sharply lowered by 950,000 b/d
as Russia's invasion of Ukraine and severe Western sanctions against Russia hit the economy.
OPEC cut its forecast for global oil consumption demand in 2022 by 300,000 b/d to 3.
4 million b/d
.
The EIA raised its forecast for global crude oil demand growth in 2022 by 60,000 b/d to 2.
28 million b/d
.
Pay close attention to the situation in Russia and Ukraine and the progress of negotiations on the
Iran nuclear deal.

South China Futures (603093) Crude Oil: Oil prices have once again entered a wide range of volatility, mainly on the sidelines for the time being

Crude Oil Morning Review: Supply disruptions in Libya and possible production shutdowns in Norway outweigh speculation that
an economic slowdown could dampen demand.
From the news, first, the market news OPEC oil production in June fell by 100,000 barrels / day from May to 28.
52 million barrels / day, last Thursday OPEC+ monthly meeting maintained the 648,000 barrels / day production increase plan unchanged, the market is worried that OPEC spare capacity is insufficient, difficult to reach the expected output, boost oil prices
.
Second, EIA data showed that the four-week rolling average of gasoline demand fell to its lowest seasonal level since 2020, and the unseasonal slowdown in gasoline demand masked the positive impact
of the oil inventory report.
Third, the United States wants OPEC+'s plan to increase production by 648,000 b/d in July and August to be the "first step" of its supply policy, followed by a "second step
".
The United States is in talks
with OPEC countries that still have spare capacity.
The need for further releases of the SPR
beyond October will be assessed.
At present, the logic of market transactions is that OPEC+ has limited future production increase capacity, Libya, Norway production reduction and the market pessimistic about global economic growth expectations, the United States gasoline demand year-on-year decline between the trade-off, oil prices once again into a wide range of shocks, Iran nuclear negotiations will restart next week, pay attention to risk prevention, temporarily wait and see
.

Hengtai Futures 2022 half-year crude oil strategy report

Oil price outlook for the second half of the year: Looking forward to the second half of 2022, in the short term, the speed of production increase in major producing countries is difficult to accelerate, oil demand is still supported to a certain extent, superimposed on short-term low inventories will support oil prices, the current global crude oil and refined oil inventories are at the absolute low level in recent years, from the inventory valuation, oil 90-95 US dollars / barrel support is strong
.
In the medium and long term, as supply picks up and demand growth declines, oil prices may fall under the rebalancing of supply and demand, but the speed and magnitude of the decline depend on political factors and the speed of the
overseas tightening cycle.

Supply side: Global crude oil supply remained tight
in the second half of the year.
OPEC+ is likely to fail to reach the quota in the future, and the possibility of covering the global supply gap is low
.
In the United States, upstream capital investment is more cautious, and shale oil supply growth is limited
.
As long as Russian crude oil exports do not recover on a large scale due to the lifting of sanctions, the supply side of crude oil will remain tight
in the second half of the year.

Demand side: Demand is still resilient in the short term, but long-term growth may slow down
during recession.
In terms of gasoline, with the entry into the peak driving season in Europe and the United States, gasoline demand is still supported, coupled with the gradual easing of the domestic epidemic, domestic automotive gasoline demand has returned to normal levels, and gasoline demand is resilient
in the short term.
In terms of jet coal, due to the continuous epidemic in many countries around the world in the past two years, the aviation industry has been continuously hit, and attention is paid to the level of
follow-up recovery.
In the long run, as the tightening cycle continues to advance, there is a risk
of a gradual slowdown in the growth of crude oil demand in the second half of the year.

Most institutions believe that oil prices will remain high in the future

With the continuous tension of the geopolitical situation and the increasingly severe inflation situation, international oil prices have been running
at a high level.
But oil prices have plunged frequently in recent times
.
A number of factors have caused oil prices to fall
.
There are many reasons for the recent drop in oil prices: on the one hand, global central bank tightening, rising investor fears of a global recession, and weakening prospects for crude oil demand are putting downward pressure
on oil prices.

On the other hand, OPEC+ reaffirmed the maintenance of the previously announced production quota adjustment plan at the 30th ministerial meeting, and decided to increase the crude oil production quota in August by 648,000 barrels per day to restore nominal oil production to pre-pandemic levels
.
The U.
S.
senior adviser on energy security said the
U.
S.
wants OPEC+'s plan to increase production by 648,000 b/d in July and August to be the "first step" of its supply policy, followed by a "second step.
"

As consumers suffer from skyrocketing oil prices, the United States is desperate to cool
prices.
To this end, the United States has repeatedly released strategic crude oil to increase marginal supply and curb the rise in
oil prices.
Due to repeated epidemics and rising inflation disrupting crude oil demand, gasoline demand in the United States is now showing signs of weakness, and the market outlook is difficult to be optimistic, leading to a decline in oil prices
.

A number of institutions believe that in the medium and long term, international crude oil is still showing a lack of supply elasticity, and oil prices will remain at a high level
in the future.

First, although OPEC+ announced a production increase, many parties are skeptical about its ability to increase production because its main members Saudi Arabia and the United Arab Emirates are close to the limit
.

Secondly, the current supply chain bottleneck in US shale oil restricts the production capacity of US crude oil, and the marginal increase in the supply side of each oil product is limited or pushes the prices of various oil products to rise
more than expected.

Third, under the current geopolitical situation, the uncertainty of Russian oil has intensified
.
At present, the G7 has agreed to impose a price cap on Russian oil and gas imports, and is studying a complex mechanism to limit the price of Russian oil, with a knock-on effect that could push prices up further
.

Jinlianchuang expects that Western countries have set price ceilings on Russian oil and gas and the turbulent political situation in some oil producing countries may trigger concerns about crude oil supply, which will keep oil prices high and volatile
.

J.
P.
Morgan believes that Russia has the ability to cut crude oil production by 5 million barrels
per day without unduly damaging the economy.
For much of the rest of the world, however, the results could be catastrophic: Global oil prices could reach $
380 a barrel if U.
S.
and European sanctions prompt Russia to retaliate against production cuts.