Source:Futubull lying flat index.
Today, let's talk about views on oil price briefly without using a calculator. Many people panic as soon as they see a downturn, but there's really no need to do so. Do some research and it'll be fine.
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The main reason is that OPEC+ unexpectedly announced that it will start gradually lifting some production cuts after October, following the extension of production cuts into the third quarter. In addition, the impact of unexpected increases in U.S. crude oil inventories, the gradual stabilization of the Middle East situation and other factors, the oil price has plummeted rapidly in the short term.
Especially the news of the exit from reducing production, which began to be widely spread in the market and interpreted as a signal of oversupply of oil prices. Here, we don't talk about whether this interpretation is correct or not. Let's take a look at the so-called crude oil supply-demand situation first.
This is a chart of the changes in global crude oil consumption and production over the past 23 years, as measured by BP. Apart from short-term disturbances around 2015 and 2020, global crude oil has never experienced a significant oversupply. However, when sporadic undersupply occurs, particularly since 2008, the oil price will rise rapidly to above 100 dollars per barrel, and the market will quickly balance and the oil price will continue to fall.
The meaning of presenting this chart is not to explain the current situation, but to tell everyone a simple truth: the market has its own regulatory mechanism.
So, what if the oil price falls rapidly to below 70 dollars per barrel after the exit from reducing production? Don't worry, someone will take action. Saudi Arabia and Russia both need a lot of money. Their fiscal balances are above 70 dollars per barrel, and to be honest, they are more anxious if the oil price really goes down. In the United States, although there is no so-called 'national will' to control oil prices, once the oil price falls below 70 dollars per barrel, it will also market to the cost of shale oil developers, and they will make their own decision to reduce production.
70 dollars per barrel (Brent crude oil price) is the fiscal balance line for most major oil-producing countries, the profit and loss balance line for American shale oil producers wanting to increase production, and the price range accepted by the global oil and gas industry after emerging from the pandemic in recent years. Without unexpected geopolitical events occurring, fluctuations of up to 5% or so around this low line are considered 'reasonable'.
Moreover, the current geopolitical events are far from being 'resolved'. As for Russia and Ukraine, those who understand the situation know it all too well. Who can put aside past grudges and reconcile between Hamas and Israel? Who can guarantee what the result of the U.S. election will be? More and more uncertain factors, higher risks, how long can temporary declines last?
The world we face is a world with more questions than answers, more disputes than cooperation. The United States, Saudi Arabia's largest security partner, is unable to command the latter to increase production and reduce prices. Who can expect Saudi Arabia to suddenly change its stance, play its internationalist spirit, sacrifice oil sales profits, and let everyone enjoy cheap oil?
Therefore, once short-term disturbances in oil prices exceed their limits, they will usher in market self-regulation. Let's wait and see, observe and observe.
Then, let's talk about CNOOC. In the entire oil world, CNOOC is an extremely outstanding company, but from the perspective of discourse power, it is an inconspicuous minor character. If the sky falls, Saudi Arabia, Russia, and the United States will support the high end.
Moreover, CNOOC has low costs. Without including exploration costs and taxes, CNOOC's cost per barrel of oil is about 28.83 dollars per barrel. It should be noted that under normal circumstances, the development cost of natural gas is lower than that of crude oil, and CNOOC's crude oil and natural gas production ratio is about eight to two, so the 'gold content' of this barrel of oil cost is very high.
Compared with U.S. shale oil producers, whose shale oil and gas production decline rates are relatively high, they need larger-scale development to offset the natural decline in production, with costs generally above 65 dollars per barrel. CNOOC's cost control ability is a level better than that of these American peers. Even if the oil price drops to 65 or even 60 dollars, it can still stably make a profit.
Therefore, panic is unnecessary. Once you understand CNOOC's fundamentals, just wait for its market value to rise further.
Editor/Lambor