What is the reason for the sharp rise in international oil prices

Since the beginning of the year, international oil prices have been rising strongly under the influence of the weakened impact of omicron strain, better than expected global oil demand, weak supply growth, intensified geopolitical turmoil in Russia and Ukraine, and snowstorms in the United States.Brent crude has averaged $87.66 / BBL since January, compared with $92.04 / BBL since February.A geopolitical risk premium pushed international oil prices up more than 2% on February 14 as concerns grew over a possible Russian invasion of Ukraine.The April Brent contract closed at $96.48 a barrel, nearing the $100 mark and its highest level since September 2014.The March WTI contract closed at $95.46 a barrel, its highest level since September 2014.At present, the oil market is characterized by high oil price, high discount, high gross margin, high demand, low inventory, low supply and strong structure.Spot prices also rose as crude oil futures continued to rise.The main factor supporting oil prices recently has been slow growth in global crude supplies.Although Opec + maintained its production increase plan, the lack of spare capacity is increasingly the focus of the market.Statistics show that the remaining production capacity of Opec + is only about 4 million b/d, mainly concentrated in a few producers such as Saudi Arabia and the United Arab Emirates. Russia, Angola and Nigeria are unable to increase production.Opec + crude oil production rose by 600,000 b/d month-on-month in January, 620,000 b/d below the production ceiling and the ninth consecutive month below agreed levels.In addition, U.S. shale oil production growth is sluggish, with U.S. crude oil production currently at 11.6 million b/d, down from pre-pandemic 13 million b/d, and projected to increase by only 600,000 b/d in 2022.Global oil demand has been significantly better than expected.Since the beginning of the year, oil demand has rebounded with the lifting of lockdowns in Europe and the United States, as the omicron strain caused mostly mild cases and the total number of vaccine doses worldwide exceeded 10 billion.Currently, US oil demand has surpassed pre-pandemic levels, with weekly oil demand once climbing above 22 million b/d, the highest level in history for this time of year.Oil demand in Europe, Japan, India, The Republic of Korea and Singapore has also basically returned to pre-epidemic levels.Later as the weather turns warm, gasoline and jet coal demand will continue to increase, especially in Europe and America jet coal demand growth is strong.Geopolitical turmoil has intensified around the world.In 2022, a number of oil-producing countries will usher in election year, and supply disruptions are frequent.At the beginning of the year, Libya, Nigeria, Ecuador, Turkey and other countries have experienced sudden supply disruptions, tightening the market supply.Since the beginning of the year, the russia-Ukraine situation has rattled the market nerves, both sides have continuously intensified warnings of war, and geopolitical tensions have continued to bring risk premiums to oil prices.Although the probability of a large-scale war between Russia and Ukraine is low, we cannot rule out the possibility of “accidental shooting” or European and American sanctions against Russia in extreme cases.Global refining margins returned to normal.With rapid oil demand growth, gross refining margins in all three major refining centers have returned to normal levels, averaging us $14.54 / BBL in the GULF, US $5.6 / BBL in Europe and US $6.49 / BBL in Singapore year-to-date in 2021.Meanwhile, global middle distillates performed well, with Singapore diesel cracking spreads approaching us $20 / BBL, the highest since October 2018.Jet coal cracking spread recovered to $15 / BBL, the highest since October 2019;Gasoline cracking spreads of more than $17 per barrel are well above pre-pandemic levels.Global oil inventories continue to run low.Since 2021, the global oil market has maintained a destocking trend. As of February 10, 2022, the global onshore crude oil stocks were 2.86 billion barrels, down nearly 230 million barrels year-on-year and 32 million barrels below the five-year average.At 590m b/d, oil product stocks in major regions are 65m b/d below the five-year average and the lowest level for this time in recent years.At 2.68bn barrels, OECD inventories are the lowest in almost seven years, with US oil stocks at 1.17bn barrels, the lowest in almost six years.It is estimated that in the first quarter of 2022, global oil inventories will continue to run at a low level, with an estimated destocking of 200,000-500,000 b/d.However, as this round of oil price rise has lasted for a period of time, with the exhaust of the positive factors, we need to watch out for the recurrence of bearish factors under high oil prices, capital profit taking risk.The main restraining factor for the oil market at the moment is the prospect of a short-lived deal on Iran’s nuclear program.Iran nuclear negotiations are the biggest “gray rhino” in the oil market.Secretary of State Antar Blinken recently signed several sanctions waivers related to Iran’s civilian nuclear activities, allowing for international cooperation projects, as the two sides negotiate key provisions on Iran’s nuclear program.In 2021, 800,000 to 1 million b/d of Iranian crude oil entered the market through grey channels, 1.2 million b/d below normal levels.An interim deal is widely expected to increase Iran’s crude oil exports by 500,000 BPD in the second quarter.The impact of high oil prices on consumer countries is gradually becoming apparent.As oil prices surge, gasoline prices in the US have risen to $3.40 a gallon, the highest level since September 2014.Japan was forced to raise fuel subsidies and Kazakhstan urged its producers to boost production as soon as possible.Similarly, when the international oil price is higher than us $80 / BBL, the transmission mechanism of China’s refined oil price will change, and combined with the high spot discount, refinery processing profits will decline.From February to April, the United States has more than 10 million barrels of strategic crude oil reserve to be released, and China is expected to release the second batch of strategic crude oil reserve. It is not ruled out the possibility that consumer countries will jointly release reserves again to curb high oil prices.The Federal Reserve is about to begin the process of raising interest rates.The Fed is likely to start raising rates by 25 basis points in March, leaving open the possibility of a rate hike at every meeting this year.The Fed is now expected to raise interest rates five times this year by 25 basis points.Higher interest rates would tighten market liquidity and push up the dollar, essentially putting pressure on financial and commodity markets.The performance of financial markets before and after previous Fed rate hikes shows that interest rate hikes have had a more significant dampening effect on U.S. stocks and a relatively limited impact on oil.Fund bulls may take profits.Recently, investment banks and funds frequently sing high commodities, long funds continue to add positions in crude oil, especially in the background of benchmark oil before high and low structure widening, crude oil futures extension gains increased, index fund scale rapidly expanded.Currently, the fund has a net long position of 270,000 lots in WTI crude oil futures, a cumulative increase of 57,000 lots from December last year.The fund’s net long position in Brent reached 230,000 lots, up 100,000 lots from December.From the perspective of historical experience, the net position of the fund to add more than 100,000 hands, the possibility of profit taking often increased, the latest week has appeared to reduce the position of the fund, to be vigilant against more profit taking.From the perspective of the afternoon market, the fundamentals of “four highs, two lows and one strong” in the oil market in the first half of the year cannot be fundamentally reversed. Coupled with geopolitical turmoil, international oil prices remain at a medium-high level and are getting closer to the $100 / barrel mark.At the same time, we should be alert to the federal Reserve interest rate hike, Iran nuclear negotiations and other key nodes caused by the oil price fall risk.As oil demand continues to outpace production, an energy fund manager said the fundamentals are in place for $100 a barrel oil, Bloomberg reported.”Global oil demand is back to pre-pandemic levels,” said Eric Nuttall, senior portfolio manager at Ninepoint Partners.So there is every reason to believe that demand will continue to grow, but the real problem is supply.We are in a structural bull market, and this multi-year bull market in oil is going to end with an all-time high.Commodity prices rose along with stocks after Federal Reserve Chairman Jerome Powell said it would accelerate the withdrawal of its stimulus program.Nuttall believes the first half of the year will be a “digestion period” and normalisation of demand due to the pandemic, and the second half will be post-shale, but the main factor will be Opec’s limited capacity.The depletion of Opec spare capacity would be the most optimistic watershed event for the oil and gas industry in decades.The Ninepoint Energy Fund topped the list of energy funds with a return of more than 180% in 2021, well ahead of the TSX Composite Index.For now, Mr Nuttall uses a conservative oil price of $70 a barrel to gauge investment opportunities and says retail investors are finally returning to the energy sector after years of underperformance.Disclaimer: The above content is reprinted from the energy Information, the content does not represent the position of the platform.National Energy Information Platform Tel: 010-65367702, email: hz@people-energy.com.cn, Address: People’s Daily, No.2 Jintai West Road, Chaoyang District, Beijing

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