Oil prices fell below $90 to enter a technical bear market, is there a possibility of reflexivity?

In the first week of August, international oil prices fell sharply, of which WTI crude oil fell below the $90 mark, a decline of more than 10%, crude oil began to lead the commodity market, and the domestic energy sector fell
sharply across the board.
More importantly, the decline in oil prices fell below the high volatility range formed after the Russian-Ukrainian conflict, reversing the strong pattern of crude oil, and oil prices entered a technical bear market
.
In the past period, the price of refined oil in the European and American markets continued to fall, the cracking gap continued to decline from a high level has approached the upper edge of the conventional profit range, high inflation has forced countries around the world to raise interest rates to tighten liquidity, which has brought downward pressure on the economy, the economic data of important countries in the world continues to deteriorate, and the risk of recession has inhibited the recovery of crude oil market demand, making the market pessimism continue to heat up
.
In addition, while crude oil prices have fallen, the strong monthly difference structure that has previously reflected the tight supply of the market has also weakened rapidly and gradually flattened, which means that the positive power brought to oil prices from the supply side is also gradually weakening
.

At the August meeting, OPEC+ agreed to increase production by 100,000 barrels / day in September, which is much lower than OPEC+'s production increase in recent months when the market supply is tight, and many analysts in the market believe that such a production increase decision is a humiliation for Biden's trip to the Middle East, it is difficult to satisfy the United States, and the US official then also expressed a more implicit statement, the decision to increase production is a step forward, the United States hopes to see more actions of OPEC+, and once again launched the Iranian nuclear agreement negotiations; OPEC+ emphasizes that the current oil demand is less than expected, and OPEC+ will definitely be very cautious
.
Although the scale of production increase was lower than expected and had little impact on oil prices, it clearly did not save oil prices from the weak crisis
.

Because the market is obviously more worried about the downward pressure on the economy and the performance of the demand side, although the supply crisis speculation triggered by the decline in Nord Stream 1 gas supply has pushed European natural gas prices back to a high level, but it has not brought additional impetus to oil prices, as the peak season demand is falsified, European and American refined oil cracking profits have shown a high level of sharp decline, investor expectations have become cautious
。 From the perspective of commodities, as the global central bank increases interest rate hikes, liquidity tightening and economic downward pressure, the overall downward trend of commodity prices is the general trend, as oil prices fall below the $90 mark, the logic of oil prices in the third quarter has gradually been confirmed, but based on geopolitical factors and potential European autumn and winter energy crisis and other influences of the supply side or will still give oil prices some uncertainties, so the whole process of oil prices will have a high probability of repeated, but the center of gravity of oil prices in the second half of the year gradually downward is the general trend
。

At the supply and demand level, bullish and short factors have weakened oil prices

Many industrial investors are still skeptical of the downward trend in oil prices, because the current global oil market inventories are still at a low level despite the recovery, and the supply-side instability and OPEC+ still insists on controlling the return of production in the context of overall tight supply, after the OPEC meeting, Saudi Aramco raised the price of light crude oil sold to Asia in September to a premium of $9.
8/barrel, a record high, which is up 50 cents from August, higher than the benchmark price in the region
。 Saudi Arabia is the world's largest oil exporter, and most of its crude oil is sold to Asia
.
Saudi Aramco's monthly pricing decision is seen as a bellwether for the oil market, which is often followed by other major producers in the Persian Gulf, a logic
that optimistic investors do not expect oil prices to fall.

However, unlike the supply concerns brought about by the Russia-Ukraine conflict in the first half of the year, over time, the market realized that the loss on the supply side was lower than expected, although OPEC+ continued to lag behind the plan in increasing production, but more and more data showed that the judgment of the recovery of the demand side at the beginning of the year was overly optimistic, which has been continuously revised since May, and the basic consensus reached by July is that the recovery of crude oil demand will be revised down by more than 1 million barrels per day from the beginning of the year.
The July EIA Energy Outlook lowered its 2022 crude oil demand forecast to 2.
2 million b/d from 3.
6 million b/d of growth, a drop of 1.
4 million b/d, nearly overshadowing the current supply losses
from sanctions against Russia 。 The data shows that from the traditional consumption season in July, the US gasoline consumption data has shown an unbelievably weak performance, significantly lower than the same period of previous years, such data is undoubtedly not expected by the market before, and the world's second largest crude oil consumer China in April after the domestic epidemic, crude oil demand plunged, the time has passed 4 months, the current Chinese crude oil processing volume is still far lower than the same period of previous years, It is certain that China's crude oil demand this year will be significantly lower than expected
at the beginning of the year.
Sluggish demand makes it difficult for refiners to increase operating rates, which led to a very rare weakness in crude oil prices in AugustAt the same time, China's refined oil market due to the pressure of inventory is not large, refiners collectively increase the price of refined oil products, but without the support of demand, such a supply-side forced market is obviously lack of sustainability, as crude oil weakened, China's refined oil prices began to fall
significantly on Thursday and Friday.

The OPEC Joint Technical Committee lowered the 2022 oil market surplus forecast by 200,000 barrels per day to 800,000 barrels per day, which is basically consistent with the EIA's July energy outlook, which adjusted the accumulation forecast for 2022 to 740,000 barrels per day (the previous outlook had an excess of only 440,000 barrels per day), the data showed that the increase in excess was mainly concentrated in the third and fourth quarters, which may be based on the change in supply and demand, in the face of excess pressure in the second half of the year, OPEC+ Finally, in the choice of a very cautious increase of 100,000 b/d in September, the smallest increase in history responded to the previous expectations
of Europe and the United States.
Clearly, OPEC realizes that although the crude oil market is fragile, the market cannot afford a large increase in supply, and the possibility that global economic activity is not as strong as it is causing energy consumption to be lower than expected, which also makes oil prices lose momentum
to rise.

The economy, inflation, the pace of Fed tightening

Friday's July nonfarm payrolls rose by 528,000, the biggest increase since February and far exceeded market expectations, while employment data confirmed the strength of the U.
S.
labor market, following two consecutive quarters of negative GDP growth, in line with the popular rule of thumb definition of recession, sparking a broad debate about whether the U.
S.
economy has actually fallen into a downturn, as well as a general decline in the global PMI index, with the China Federation of Logistics and Purchasing publishing a global manufacturing purchasing managers' index for July at 51.
2 on August 6 %, down 1.
1 percentage points from the previous month, falling for the second consecutive month month-on-month, and the lowest since
July 2020.
It shows that the growth rate of the global manufacturing industry continues to slow down, the global economic recovery momentum is further weakened, and the downward pressure is increasing
.
The July jobs report clearly changed market expectations after the release of the non-farm payrolls data, which had lowered expectations for another sharp 75 basis point rate hike in September, compared to 40.
5%
previously.
A 75bp hike is more likely than a 50bps
hike.
Against the backdrop of contradictory economic data, investors have clearly hesitated to assess the market, and the commodity market has experienced sharp volatility
as a result.
In terms of recession and inflation control options, the market is highly concerned about the Fed's follow-up actions, in the previous two speeches on August 3, two key figures of the Fed with different positions, but showed their hawkish side to varying degrees, like many Fed officials who spoke first on Tuesday, trying to quench the market's speculation that the Fed may easily turn in the past few weeks, next Wednesday will release July CPI data If the fever is still high, and supported by this strong employment data, the probability of a sharp interest rate hike will be greatly increased.
This strong dollar pattern will continue, and commodity markets will continue to be under tightening liquidity pressure
.

Friday night by the United States non-farm payrolls data exceeded expectations under the strong impact, financial markets fluctuated sharply, investors in the interest rate hike probability increase and recession pressure between the impact on the market formed a repeated game, commodity risk appetite wavered, oil prices in this context is also up and down, but the final close from the high level of a significant fall, although there are some doubts about the poor data market on the demand side, but the overall assessment of various influencing factors on oil prices is still very obvious, The monthly difference structure of the crude oil market and the cracking gap of refined oil products in the European and American markets continue to fall, indicating that the situation facing oil prices has changed
significantly.
Oil prices continue to fall to ease inflationary pressure, but also to the economy to bring respite, including European and American stock markets and some commodities rebound, this difference in strength is only a stage of rhythm dislocation, if the macro level continues to face the pressure of imposed interest rates and economic downward expectations, it is expected that commodity prices, including crude oil
, will continue to decline.