International oil prices extended yesterday’s and overnight gains and rose collectively by more than 3% before the U.S. stock market on Tuesday, Feb. 2. Analysis says this is mainly due to the rise in risk appetite brought about by the rise in U.S. stocks, the dollar near multi-year lows favorable to commodities, as well as the progress of the new crown vaccination and other factors.
U.S. oil WTI intraday high of $1.71 or up 3.2%, breaking through two integer levels of $54 and $55 in quick succession, with a daily high of $55.26, the first Time since January 2020 on the $55 per barrel mark, returning to a new one-year high, also pre-Epidemic levels.
International Brent intra-day maximum rise of $ 1.72 or 3.1%, breaking through $ 57 and $ 58 two integer levels, the daily high to $ 58.05, is also the first time in a year rose through $ 58, back to the level before the new crown epidemic.
On Monday two oil prices had collectively risen more than 2%, breaking through $ 53 and $ 56 respectively.
WTI March Crude Oil futures closed up $1.35, or 2.58 percent, at $53.55 per barrel, the largest closing gain in the main contract since Jan. 8, extending a cumulative gain of nearly 8 percent in January.
Brent April crude oil futures closed up $1.31, or 2.38%, at $56.35/barrel, also the largest gain since Jan. 8. Brent oil rose 0.85% last week, up two weeks in a row, and also rose nearly 8% in January.
On the news front, at the beginning of the week, oil prices were mainly boosted by OPEC+’s aggressive compliance with the oil production cut deal, as well as the positive boost from major Middle East Persian Gulf oil producers who reduced shipments in January.
Both Reuters and Bloomberg findings showed that OPEC’s oil production increased by 160,000 to 190,000 barrels per day in January, smaller than the 300,000 barrels per day increase allocated to OPEC under the revised OPEC+ production cut deal, leaving OPEC producers with a 103% implementation rate of the agreement in January, up from 99% in December last year. And including non-OPEC countries such as Russia and Kazakhstan, OPEC+ as a whole had a 93% implementation rate of production cuts in January, which is a high level. One analysis said, “OPEC+’s concerted efforts to comply with the production cut agreement helped boost oil prices.”
And while production has increased for months on end, crude oil exports from core OPEC producers are sliding. On Tuesday, according to ship tracking data monitored by Bloomberg, combined shipments of oil and condensate from Saudi Arabia, Iraq, the United Arab Emirates and Kuwait fell by nearly 430,000 barrels per day in January from a year earlier, with OPEC’s “boss” Saudi Arabia seeing the biggest drop, with daily exports falling 10 percent to the lowest since August 2020 and the biggest monthly drop since June last year. It was also the largest monthly decline since June last year. The four core countries’ daily shipments are still 2 million barrels lower than in 2019.
Meanwhile, Saudi Arabia is more optimistic about the supply-demand balance in the oil market and the recovery of oil demand this year. Saudi Aramco said this week it believes the epidemic has passed its worst and that oil demand will return to pre-epidemic levels later this year. the OPEC+ group, for its part, said on Tuesday it expects crude inventories to fall below their five-year average in the second quarter of this year, equaling the completion of the goal set at the start of the OPEC+ alliance to form production cuts.
This could even send the oil market into a tightening supply-side price hike logic. Saudi Arabia will voluntarily cut production by an additional 1 million barrels per day for two months in February and March, on top of the agreed scale of production cuts in the OPEC+ joint production cut agreement. There is also analysis that Russia plans to cut crude oil exports by nearly 20% in February to the lowest in three months. All of this is one of the key drivers of higher oil prices this week, the commentary said.
What’s more, a severe snowstorm hit much of the northeastern U.S., thus pushing up heating oil demand, and U.S. oil inventories are expected to fall in the short term; risk sentiment was clearly boosted by the strong rally in U.S. stocks on Monday and Tuesday; and the dollar rebounded but stayed at multi-year lows, favoring dollar-denominated commodities. All of these factors have been involved in supporting the recent oil price performance.
However, contrary to Saudi Arabia’s optimism, large international oil companies have warned of a possible slow recovery on the oil demand side in 2021. Mobil Oil will continue its capital and operating expenditures for the next two years, and some analysts say oil prices remain uncertain as the epidemic may accelerate the global transition to a low-carbon economy.
Under the weight of the economic blockade and industry shutdown caused by the epidemic, large oil companies reported one of their worst annual results in decades for 2020 earnings. ExxonMobil lost $22 billion last year, BP Oil lost $18.1 billion and Chevron Oil lost $5.5 billion.
Demand for oil was cut sharply during the epidemic and oil prices were under pressure, forcing the world’s largest energy companies to cut spending, lay off employees and write down the value of their assets, according to the analysis. Oil and gas asset values recorded the largest correction in at least a decade, energy stocks in the S&P 500 last year, the worst performance of the 11 major sectors, the crisis, Mobil and Chevron two U.S. oil giants have even discussed a merger.
BP Oil warned in its earnings release today that demand for fossil fuels may never fully recover to pre-epidemic levels, and that restrictions following the backlash will continue to lower oil demand in early 2021 and could have a lasting impact on the global economy, even accelerating the transition to a low-carbon economy.
While crude oil demand will stabilize this year, the speed and extent of the recovery is uncertain and depends entirely on the progress of the new crown vaccination, the effectiveness of the vaccine, and OPEC+’s willingness to comply with production cuts.
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