Summary
This week (8.29-9.4), crude oil overall showed a downward trend in volatility. The average price of WTI this week was $72.25 per barrel, a decrease of $2.81 per barrel, or -3.75%, from the previous week. The main factors that led to the pressure and decline in oil prices during the week were: OPEC's increase in crude oil supply, the expected recovery of Libyan crude oil supply, and poor US energy demand.
Chapter 1 Review of the Trends in the International Crude Oil Market
Review of This Week's Crude Oil Futures Market
This week (8.29-9.4), crude oil overall showed a downward trend with fluctuations, and the average price fell compared to the previous week.
During the week, bearish factors dominated the market news. Expectations of increased oil supply from OPEC and the potential recovery of Libyan oil supply put pressure on oil prices. Several sources have stated that due to interruptions in Libyan oil supply and member countries committing to reduce excess production, OPEC+ will continue to increase oil production as planned starting from October. Although concerns over the disruption of Libyan oil supply once provided support for oil prices, different political factions in Libya reached an agreement this week. The House of Representatives in Benghazi and the Higher State Council in Tripoli have agreed to jointly appoint a new central bank governor within 30 days and extend negotiations until September 9. This agreement is expected to end the nationwide halt in crude oil production. According to data from the National Oil Corporation of Libya, this production halt resulted in a 63% reduction in Libyan oil production, about 0.724 million barrels per day. The market expects that the disrupted oil supply from Libya will return to the global market. In addition to concerns about increased supply, worries about weak energy demand also weigh on oil prices. Data released by the US Energy Information Administration (EIA) during the week showed that petroleum consumption in the US slowed down in June, reaching the lowest seasonal level since the COVID-19 pandemic in 2020. Crude oil and petroleum product supplies in June decreased by 2.7% compared to the previous month, to 20.25 million barrels per day, the lowest level for June since 2020.
Review of This Week's Crude Oil Spot Market
This week, the average spot price of international crude oil fell compared to the previous week. In the Middle East crude oil market, Qatar Energy (QE) is expected to supply approximately 17 shipments of El-Shahine crude oil for loading in November, the same as the supply volume for October. The market price of El-Shahine crude oil for loading in November is at the same level as the prices of Dubai crude oil and Upper Zakum crude oil. After the price of benchmark Dubai crude oil in the Middle East fell last month, it is expected that Saudi Arabia will lower the official selling prices of most of its crude oil to the Asian market for October. The official selling price of Arab Light crude oil for October is expected to decrease by $0.50-0.70 per barrel. Three sources mentioned that due to strong support from fuel oil demand, the official selling price of Arab Heavy crude oil for October will decrease by less than $0.50 per barrel, while the other two sources expect a decrease of $0.60-0.80 per barrel. In the Asia-Pacific crude oil market, the monsoon season in southern India is coming to an end, which will result in an increase in construction engineering. Therefore, the demand for medium and heavy crude oil may increase, and energy companies in India and other South Asian regions are expected to increase their purchases of medium and heavy crude oil, such as Basra Medium and Khafji. Santos, a company from Australia, plans to sell 0.65 million barrels of Kutubu crude oil for loading in the second half of November. In addition, Petronas, the national oil company of Malaysia, has lowered its official selling price for its Malaysian crude oil package for August from $90.71 per barrel in July to $87.11 per barrel. Among them, the official selling price of Tapis crude oil decreased from $86.23 per barrel in July to $82.60 per barrel, the official selling price of Dulang crude oil decreased from $93.15 per barrel in July to $89.62 per barrel, and the official selling price of Bintulu crude oil decreased from $88.25 per barrel in July to $85.08 per barrel.
Chapter 2 Analysis of Factors Affecting Crude Oil Futures Market
Supply and Demand Factors
This week, in terms of supply, the crude oil market has begun to focus on the OPEC+ August oil production meeting. OPEC+ will decide at this meeting whether to continue the expansion plan originally scheduled to begin in October. However, there is currently a divergence in the market on whether OPEC+ will resume production as planned in the next quarter. OPEC+ has repeatedly emphasized that, when necessary, it can "pause or reverse" production increases. With the major consumer countries experiencing weak economic growth, the outlook for the crude oil market has turned pessimistic in recent weeks. Therefore, it cannot be ruled out that this production-cut alliance may delay the expansion plan.
On the demand side, fuel demand has been weak, especially diesel demand. This is not only the result of the real estate crisis and economic downturn, but also due to the structural changes in transportation, as the shift to liquefied natural gas-powered trucks has restricted the use of diesel in the transportation sector, thereby slowing the overall growth of oil demand. Due to weak economic growth and fuel demand below expectations, overall oil demand has weakened, leading to a decrease in crude oil imports, which is one of the biggest factors weighing on crude oil prices in recent months. In addition, as the peak summer driving season is coming to an end, the market's expectations for future oil demand are not optimistic.
Changes in US Inventory This Week
Due to September 2nd being a public holiday in the USA, the EIA petroleum data will be released one day later.
The operating rate of US refineries continues to rise, and commercial crude oil inventories decreased for the eighth time in the past nine weeks, while US gasoline decreased and distillate fuel demand increased. According to the US Energy Information Administration data, as of the week ending August 23, 2024, crude oil inventories were 0.53% higher than the same period last year, 4% lower than the same period over the past five years; gasoline inventories were 0.45% higher than the same period last year, 3% lower than the same period over the past five years; and distillate inventories were 4.38% higher than the same period last year and 10% lower than the same period over the past five years. In addition, last week, the average daily crude oil imports to the US were 6.56 million barrels, a decrease of 0.092 million barrels from the previous week, and finished oil daily imports were 196 barrels, an increase of 0.085 million barrels from the previous week.
Fund holding situation
Speculators' net-long positions in light crude oil futures on the New York Mercantile Exchange increased by 2%. According to the latest statistics from the U.S. Commodity Futures Trading Commission, as of the week ending August 27th, the total open interest in WTI crude oil futures slightly decreased, while other positions rebounded. Among them, the total open interest fell slightly, long positions increased by 2.9% compared to the previous week, short positions increased by 5.7% compared to the previous week, and net long positions increased by 2.0% compared to the previous week. As a result, the long/short ratio of WTI continue to fall to 3.95, a decrease of 0.11 or -2.68% compared to the previous week.
During the week, weighing global economic and oil demand prospects, the total funding of crude oil futures remained relatively stable. Looking at the funding situation on the exchange, both long and short positions increased due to mixed market news. However, with the end of the peak summer driving season in the United States, concerns about oil demand ultimately outweighed, leading to a more significant increase in short positions. Looking at the performance of oil prices, WTI crude oil futures prices showed a fluctuating trend and ultimately maintained around $75 per barrel. Looking ahead, while the global economic and oil demand prospects are expected to be poor, the tense situation in the Middle East still supports the oil market to a certain extent, so the oil price may be mainly volatile and cautious. We need to pay attention to the OPEC+ oil production meeting and the Federal Reserve's interest rate cut policy, which will provide guidance for oil prices.
Chapter Three Outlook for Crude Oil Futures Market Trend
Market Outlook for Next Week
On the technical chart, the price of WTI crude oil futures fluctuated downward during the week. The main factors boosting oil prices during the week are: a sharp reduction in Libyan crude oil production, a significant decline in Iraqi crude oil production in September, and continued tension in the Middle East. The main factors depressing oil prices during the week are: the expected recovery of Libyan crude oil supply, concerns about the outlook for energy demand from investors, the possibility of OPEC+ increasing oil production in October, the lowest seasonal level of U.S. oil consumption since the epidemic in June, and poor U.S. economic data. As of the 4th, WTI closed at $69.20 per barrel, a decrease of $5.32 per barrel or -7.14% compared to the previous week; as of the week of the 4th, the weekly average price of WTI was $72.25 per barrel, a decrease of $2.81 per barrel or -3.75% compared to the previous week. From a technical perspective, the downward momentum of oil prices is increasing.
On the economic front, in the United States this week, the risks of high inflation and rising unemployment have become more balanced, and the Federal Reserve is preparing to relax its restrictive monetary policy. The President of the St. Louis Fed stated that unless there are some unexpected economic shocks, a rate cut in September is already a trend. Since July 2023, the FOMC has kept the federal funds rate in the target range of 5.25% to 5.50%. The market generally expects that a rate cut cycle will begin in September, and Federal Reserve officials have not explicitly refuted this in recent speeches. Fed Chairman Powell said at a recent meeting that the "time has come" to adjust monetary policy.
On the 29th of this week, the National Oil Corporation of Libya stated that the country's oil production had decreased by 1.5 million barrels in the past three days, resulting in a total loss of 0.12 billion US dollars. The dispute between leaders in eastern Libya and the western authorities over the central bank issue has led to an oil blockade, significantly reducing the flow of crude oil. The daily oil production has dropped by nearly 0.5 million barrels, and this figure does not include the SharaRa oil field, which was closed earlier this month.
Iraq plans to reduce its oil production to between 3.85 million and 3.9 million barrels in September to compensate for overproduction. The country's production in July was about 4.25 million barrels per day, exceeding the quota of 4 million barrels per day, with cumulative overproduction of 1.4 million barrels per day from January to July. Iraq canceled a batch of 1 million barrels of spot supply in August to reduce exports for the month. The country's oil ministry has submitted a plan to OPEC to compensate for the overproduction from this month to September 2025.
Non-OPEC oil-producing country Kazakhstan has submitted a plan to compensate for over-quota production to the OPEC Secretariat. From January to July this year, Kazakhstan's daily crude oil production has accumulated overproduction of 0.699 million barrels. The country has promised to reduce production and compensate for part of the over-quota production from August to September 2025.
According to a government notice, the Indian government will reduce the windfall tax on domestic crude oil exports from 2100 rupees per ton to 1850 rupees per ton. The adjustment will take effect from August 31. The Indian government adjusts the windfall tax every two weeks.
On the 4th, negotiations led by the United Nations on the central bank crisis made a breakthrough, and competing political factions in Libya reached an agreement. This agreement may end the nationwide shutdown of crude oil production. According to the Libyan National Oil Corporation's data, Libya previously cut production by 63%, equivalent to 0.724 million barrels per day.
Jinlianchuang expects that next week (September 5-11), although the expected acceleration of crude oil production recovery in the Libyan Bureau of Mines has led to a decline in oil prices, the weak global economy and poor oil demand remain the main reasons for the weak oil market. If OPEC+ does not change its plan to partially restore crude oil production from October, the fundamental situation of the future oil market will further deteriorate. Overall, the short-term oil market is still in a weak phase, and international oil prices may still have space for fluctuation and decline.
Chapter 4: Examples of crude oil futures market price differentials.
As for market institutions or investors, they can focus on crude oil futures to participate in the crude oil market. Assuming that a futures institution wants to implement an inter-period arbitrage plan for market trading, the institution can develop a trading strategy based on the current market conditions. If the current crude oil prices show a overall downward trend and the price changes significantly, investors can profit from one-sided trading. However, as the price reaches the bottom, one-sided trading will involve risks. At this time, using spread arbitrage can effectively hedge the risk of one-sided trading. When investors use spread arbitrage for trading, whether the spread of crude oil futures between the forward and near contract narrows will determine the success of the arbitrage. Assuming that investors sell the near contract while buying the forward contract for spread arbitrage, if the profit from the near contract is greater than the loss from the forward contract, the overall trading can still maintain a profitable state.
Disclaimer
The data, opinions and forecasts in this report reflect the personal judgement of the author on the day of the initial release of the report. They are based on information that the author believes to be reliable and publicly available, but the accuracy and completeness of this information are not guaranteed. The author also does not guarantee that his/her views or statements in the report will not change. In different periods, the author may issue a report inconsistent with the data, opinions and predictions of this report without notifying anyone. The information or opinions expressed in the report do not constitute investment advice for anyone, and the cases listed in this report are for demonstration purposes only. The author is not responsible for any losses incurred by anyone using the content of this report.
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The market involves risks, and investment needs to be cautious.