News from the Financial Associated Press on December 7 (edited by Shi Zhengcheng)As 2022 is about to come to an end, crude oil, which has fluctuated violently for a whole year, has quietly touched the low point of the year after two consecutive days of sharp falls this week.
As of press time, both Brent oil and WTI crude oil have fallen by more than 4%. Among them, Brent oil has fallen below the $80 mark, a new low since January 4 this year, while U.S. oil has directly fallen below the low point of the year.
(Daily chart of cloth oil and US oil, source: TradingView) In fact, before the start of this week,The expectations of the crude oil market are more focused on the reduction in supply after the new Russian oil sanctions are implemented, but the sharp drop for two consecutive trading days also shows a sudden change in the market’s trading sentiment。
RJO Futures market strategy analyst Eli Tesfaye explained,The sentiment in the market is turning increasingly negative. According to the current progress, WTI crude oil is heading towards the $60 mark step by step.The next $80 will be the new resistance level, it will be a surprise if it is broken。
Although there have been many events related to the crude oil market in the past two days, it is difficult to attribute the decline to a single factor.
First of all, with the strengthening of the US economic data on Monday and the expectation of a more aggressive and longer-lasting interest rate hike by the Federal Reserve, global risk assets have been in a precarious state for the past two days, and the Nasdaq fell nearly 2% for two consecutive days. For crude oil, which is priced in dollars, a stronger dollar means higher energy costs, which will naturally dampen demand.
Next week, the Federal Reserve will hold its last interest rate meeting this year, and the market generally expects that FOMC will continue to add a 50 basis point weight to the balance of suppressing the economy. Stubborn inflation has also clouded the outlook for next year’s economy, further weighing on sentiment for risky assets.
As for the Russian oil price limit measures imposed by the G7, the sharp drop in the past two days has clearly reflected the market’s views. On the one hand, the current $60 limit itself does not constitute an obstacle to restricting Russian oil exports or production. On the other hand, the European Union and the United States have also given the crude oil market a 45-day transition period, as long as the end user can receive the goods before January 19 next year.
What makes the market even more ridiculous is that most of the world‘s oil trade is calculated at forward floating prices, which also means that if the G7 allies want to abide by the price ceiling, they must buy crude oil at a fixed price, which is not very common.
The U.S. Energy Information Administration (EIA) also released its latest short-term energy outlook on Tuesday,It is expected that U.S. crude oil production capacity will reach 12.34 million barrels per day next year, which is expected to exceed the peak record of 12.31 million barrels per day set in 2019. EIA also lowered the average Brent oil spot price this year and next to $101 and $92, from $102 and $95 previously.