01, Oil Price Plunge
International crude oil prices have once again experienced a significant decline. West Texas Intermediate (WTI) crude oil futures have fallen for two consecutive days, dropping from a previous high of $87.5 to a low of just $81.4.
Brent crude oil prices have also fallen in tandem, plummeting from $94.8 to a low of $89.5 within two trading days.
After entering November, the production cut decision made at the OPEC meeting officially began, but it now appears that the supply of crude oil is not as tight as everyone imagined.
At the beginning of the month, when the production cuts were just being implemented, international crude oil prices saw a slight increase.
However, starting from the highest price of $93.74 on November 7th, crude oil prices have been continuously falling, with a drop of $11 to date, representing a decline of over 10%.
The key issue now is not supply tension, but rather insufficient demand.
02, Supply and Demand Conundrum
The recent statements from the International Energy Agency (IEA) and OPEC have once again been in direct opposition, with each contradicting the other.
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OPEC's newly released demand report indicates that global crude oil demand will continue to rise next year.However, the Energy Agency has issued a warning to the world through its monthly report, suggesting that the current supply and demand balance has become problematic, leading to further price increases, which in turn will cause damage to demand. The report lists many influencing factors, including the imminent implementation of the ban on Russia, strikes at refineries in some European countries, and climatic factors. It also points out that diesel prices have risen by 70%, a much larger increase than the 11% rise in crude oil futures prices. The International Energy Agency believes that increasingly high energy prices have a severe suppressive effect on energy demand. The data presented in the report seems to illustrate this trend, with daily demand last year at 1.5 million barrels, while global demand for gasoline and diesel has plummeted to 400,000 barrels per day, showing a significant contraction. In addition, the International Energy Agency warns the market that reselling Russian oil is very difficult, meaning that countries not participating in the ban are unlikely to buy Russian oil and then resell it to other countries. This is because European shipping and financial service companies are also affected by the ban, and without the support of shipping and financial services, reselling energy products will be very challenging. Previously, US Treasury Secretary Yellen also made a request to India, allowing them to purchase Russian crude oil, but on the condition that they do not use financial and shipping services provided by Western countries. 03, The United States' Contingency Plan. In addition to supply and demand factors, the US dollar's interest rate hikes are also a significant factor affecting the trend of crude oil prices. Federal Reserve official George stated that the current employment data shows that the economy is still overheating, and under such circumstances, it is difficult to reduce inflation.George even directly pointed out that it may take an economic recession in the future to bring down inflation.
Moreover, what surprised the market even more was that the previously dovish Dai Li surprisingly made hawkish remarks.
He believes that there should be no discussion of pausing interest rate hikes at present, and future interest rates should be maintained between 4.75% and 5.25%, which means that at least an additional 100 basis points should be increased on the current basis.
If the Federal Reserve continues to raise interest rates, it will be difficult for crude oil prices to rise for a long time.
The United States has been asking oil-producing countries to increase production and reduce oil prices. Faced with the non-cooperation of oil-producing countries, the United States only needs to use this trump card - continuously raising interest rates - to suppress oil prices.