At 24:00 p.m. on October 24, domestic refined oil prices will usher in a new round of price adjustment window. Affected by the volatile rise in international crude oil prices, tonight's price adjustment for refined oil products may be the second increase since the second half of the year.

According to estimates by industry agencies, as of October 21 (that is, the ninth working day of this round of refined oil price adjustment cycle), the average price of reference crude oil varieties was 90.38 US dollars per barrel, with a rate of change of 1.14%. It is estimated that domestic gasoline and diesel will increase by 180 yuan per ton, equivalent to an increase of 0.13 to 0.15 yuan per liter of gasoline and diesel.

In the international crude oil market, as of the close of trading on October 21, the price of WTI crude oil futures for December delivery rose 0.54 US dollars, to close at 85.05 US dollars per barrel, or 0.64%; the price of Brent crude oil futures for December delivery rose 1.12 US dollars to close at 93.50 US dollars per barrel, an increase of 1.21%.

Under the current domestic refined oil price adjustment mechanism, the price adjustment of domestic oil prices is highly correlated with the trend of international crude oil prices during the period. According to the “Refined Oil Pricing Mechanism”, the adjustment of domestic refined oil products is mainly based on the rate of change obtained by comparing the weighted average price of international crude oil prices over 10 working days with the weighted average price of international crude oil prices in the previous cycle.

In fact, the current price fluctuations in the international crude oil market are the result of a long and short game between OPEC+ and the US.

On the one hand, the US is expanding the supply of oil in the market to calm oil prices by releasing strategic oil reserves. On October 19, local time, US President Joe Biden said in a public speech at the White House that the US Department of Energy will sell 15 million barrels of strategic reserve crude oil inventory in December to complete the 180 million barrels strategic inventory placement plan announced in March.

Previously, the US had released a total of 165 million barrels of strategic oil reserves. On March 1, Biden announced the release of 30 million barrels of inventory; at the end of March, he announced that he would release a total of 180 million barrels of strategic oil reserves within six months to stabilize domestic oil prices; and in September, he announced that an additional 10 million barrels would be invested in November.

On the other hand, OPEC+ member countries' reaffirmation of their proposition to cut production also boosted international oil prices. The recent news that OPEC+ has cut production beyond expectations has caused the fluctuation range of international oil prices to rise from 80 US dollars/barrel to 90 dollars/barrel before the announcement to 90 dollars/barrel to 100 dollars/barrel. On October 5, OPEC+ announced a quota reduction of 2 million b/d at the regular monthly meeting. This reduction in production was the biggest production cut since oil-producing countries agreed to drastically cut production after the outbreak of the epidemic in 2020. The scale of production cuts was equivalent to 2% of total global oil exports.

Low crude oil inventories have led to supply-side tightness, which is another reason for the fluctuating rise in international oil prices. According to data from the US Energy Information Administration (EIA), for the week ending October 14, US strategic oil reserve (SPR) inventories fell by 3,564 million barrels to 405.1 million barrels, the lowest value since nearly 38 years (the week of 1984/6/1).

“Factors such as the slowdown in global economic momentum and the maintenance of austerity by overseas central banks have put significant downward pressure on crude oil demand.” Gui Chenxi, chief energy analyst at CITIC Futures, told First Financial Correspondent, “OPEC announced that production will be adjusted flexibly by 'holding production meetings at any time' to hedge against falling demand. In anticipation of a mild recession, if OPEC cuts production moderately, it is possible to maintain a balance between supply and demand and stable oil prices.”

According to Zheng Mingya, a refined oil analyst at Zhuochuang Information, the main conflict in the oil market currently focuses on supply-side games. “OPEC+ production cuts provided support, while America's abandonment of reserves brought disadvantages. For Saudi Arabia, the price of $80 per barrel is its lower border; for the US, the price of $100 per barrel is its upper border.”

Wang Shan, an oil analyst at Jin Lianchuang, believes that on the one hand, OPEC+'s decision to drastically cut production is major good news for the international crude oil market. However, European and American countries continued to raise interest rates in the context of high inflation rates, further deepening expectations of weak demand for crude oil, which in turn put strong pressure on oil prices.

It is worth mentioning that in the first 19 oil price adjustments this year, domestic refined oil product adjustments showed “11 rises, 7 falls, 1 stranded” situation.

Article source: First Finance