U.S. oil fell 9.83% this week, the largest weekly decline in more than a year, hitting a minimum of US$67.40/barrel and closing at US$68.24/barrel. Friday’s panic caused by the new variant of the new crown virus, global stock markets fell, and oil prices showed a large margin. Diving, cloth oil fell 8.72% this week, hitting a minimum of US$70.99/barrel and closing at US$71.80/barrel.
The new variant virus discovered in South Africa has prompted the United States, the European Union, and the United Kingdom to restrict air travel from the region, causing the entire financial market to be embroiled in a wave of selling, and at the same time intensifying concerns about the possible expansion of oversupply in the crude oil market in the first quarter.
U.S. releases strategic crude oil reserves
U.S. President Biden’s decision to use the country’s emergency oil reserves marks the first time in two decades that a president has used reserves to curb energy prices, rather than to solve supply disruptions.
This also marks the first time that the United States has not joined forces with oil-consuming countries to release oil reserves under the auspices of the International Energy Agency (IEA), a Western energy watchdog.
Biden announced on Tuesday that the United States will release 50 million barrels of crude oil from its strategic oil reserves and coordinate with India, South Korea, Japan and the United Kingdom to release oil reserves in an attempt to contain oil prices that have reached a seven-year high.
Tristan Abbey, president of the consulting firm Comarus Analytics, said that he worked in energy at the White House during the Trump administration. The danger is that future governments will use this so-called managed release of reserves as a precedent for future releases to control oil prices.
Biden’s decision has created new risks for oil traders and the drilling industry seeking to track government policy decisions related to the market. The drilling industry may see this as a signal that the government of the consumer country regards the price of around US$80 per barrel as the upper limit of the market.
This will limit the potential profits of future oil investment and therefore may affect energy investment.
Benjamin Salisbury, an energy policy analyst at Height Capital Markets, said the consequences may not be easy to detect, but they are everywhere. It will change energy companies’ perceptions of future uncertainty and investment in new projects, whether it’s drilling, oilfield services or pipelines. Project, this will leave the possibility for the emergence of new risks.
Before the announcement of Biden’s release of oil reserves, OPEC+ oil-producing countries repeatedly ignored the calls of the US and other consumer governments to increase crude oil production. At the same time, next year’s US Congressional elections are coming soon, Biden is trying to curb rising inflation.
Strategic oil reserves are usually used to provide sufficient supply after interruptions, such as hurricanes causing pipeline or oilfield damage, or wars that suddenly shut down production in a conventional supplier country. There is no such interruption currently.
Although Biden’s decision to use reserves to drive down oil prices is unusual, it is not without precedent. In 2000, then US President Clinton released 30 million barrels from the strategic oil reserve to help reduce the high heating costs for families after the winter entered. At that time, there was no substantial supply interruption.
(U.S. Oil Weekly Chart)
New variants of the new coronavirus are progressing, and the prospects of the oil market may deteriorate
Sources said that OPEC+ is monitoring the progress of new variants of the new crown virus, and some people worry that in less than a week before the policy-making meeting, this may worsen the prospects of the oil market.
A source said that as a major member of OPEC+, Russia is currently not worried about virus variants. OPEC+ has consistently rejected the U.S.’s call for more measures to reduce oil prices, continuing to increase its output of 400,000 barrels a day since August, and slowly lifting last year’s record production restrictions.
Authorities around the world were shocked by the news of the new variant of the new crown virus Omicron (B.1.1.529). The European Union, the United Kingdom and India have all announced the strengthening of border controls.
When talking about the new variant, an OPEC representative said that it is not good because it adds bearish sentiment to the weak (oil market) outlook, while another believes that this may be the case, but it is still too time to say Too early.
A source familiar with Russian ideas downplayed the virus variant on Friday. The source said: I think the market panic caused by the new crown virus should be calmed down.
South African health officials announced at a press conference on Thursday that South African scientists have detected a new variant of the new coronavirus that poses a “major threat” to curbing the spread of the new coronavirus. South African Minister of Health Joe
Phaahla said that this new variant of the new crown virus, named B.1.1.529, “spurred a surge in new crown diagnoses in South Africa,” and the authorities are keeping serious concerns about this virus strain.
(Weekly chart of oil distribution)
OPEC meeting next week to decide whether to increase production plans
OPEC+ will meet on December 2 to determine production policy. Another source said that the alliance will assess the importance of the impact of the variant virus on the market.
OPEC and its allies are increasingly inclined to abandon plans to increase production at the meeting next week. Participants who asked not to be named revealed that the Saudi-led coalition of 23 countries tends to abandon the plan to moderately increase production in January at the December 1st to 2nd meeting. After the United States and other oil-consuming countries announced the release of emergency oil reserves on Monday, the organization is already considering a suspension of production increases.
An OPEC source said that based on the findings of a panel of experts who advised OPEC ministers, the release of the strategic oil reserves led by the United States may increase supply in the coming months. These forecasts cast a shadow over the prospects of the December 2 meeting, when OPEC will discuss whether to adjust the plan to increase production by 400,000 barrels per day in January and beyond.
Bob McNally, president of the consulting agency Rapidan Energy Group and a former White House official, said that the emergence of new variants may lead to new lockdowns and travel restrictions, which is precisely the changes in market conditions that may cause ministers to deviate from their original (increased production) plan.
Sources previously said that an OPEC group that provided advice to ministers met this week. They believe that the release of oil stocks led by the United States will increase the oversupply situation next year. OPEC has issued a warning against oversupply next year.
Lipow Oil Associates President Andrew Lipow said: “Considering that the United States is in the holiday season and trading is thin, I think the market is digesting the release of reserves announced by major consumer countries, and I want to know how OPEC+ will respond.”
Three OPEC+ sources told Reuters that although the United States and other countries have decided to release crude oil reserves, OPEC+ has not currently discussed a suspension of production increases.
OPEC member states, the UAE and Kuwait stated that they fully cooperate with the OPEC+ agreement and have no pre-set position before the meeting next week.
The U.S. Department of Energy said it has begun auctioning a total of 32 million barrels of crude oil released from the four Strategic Petroleum Reserve (SPR) pools, which will be delivered between the end of December and April 2022. The Ministry of Energy will announce the sale of up to 18 million barrels of SPR crude oil as early as December 17.
The Iraqi Oil Minister said that the future prospects of the oil market are still uncertain. Due to the current global market turmoil, the Organization of the Petroleum Exporting Countries (OPEC) is very cautious about output and reducing supply. This strategy has been quite successful. OPEC does not want to lose this success, because the oil market is still quite fragile, and any additional supply may lead to price collapse or oversupply.
Outlook: Market news and economic data next week
In terms of economic data next week, it will usher in the German November CPI annual rate, China‘s November official manufacturing PMI, the Eurozone November CPI annual rate, the U.S. ADP employment rate in November, the Eurozone unemployment rate in October, and the U.S. unemployment rate in November.
In terms of market news, the South African health department recently announced the discovery of a new variant of the new coronavirus in the country, which carries more genetic mutations. The Governor of the Bank of Japan Haruhiko Kuroda delivered a speech, the Fed Governor Bowman delivered a speech on the central bank and the US economy, the OPEC+ ministerial meeting of oil-producing countries, and the 2021 FOMC vote committee and Atlanta Fed President Bostic’s speech are all worthy of attention.