Home World Global energy pattern reset: Will the fall in crude oil prices become a nightmare for the CCP? | Energy | Crude Oil | Prices | Russia | Ukraine | OPEC |

Global energy pattern reset: Will the fall in crude oil prices become a nightmare for the CCP? | Energy | Crude Oil | Prices | Russia | Ukraine | OPEC |

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Global energy pattern reset: Will the fall in crude oil prices become a nightmare for the CCP?  | Energy | Crude Oil | Prices | Russia | Ukraine | OPEC |

【Voice of Hope March 17, 2022】(Author: Huo Ming) At a gas station in Shenzhen, China, there are long lines of private cars, and car owners have only one voice in the face of shouting gas station employees: “Top up, top up.” At 24:00 on March 17th, China‘s domestic refined oil price adjustment window has opened again, which is the fifth increase this year.

The price of No. 92 gasoline and No. 0 diesel may increase by 0.64 yuan and 0.70 yuan per liter, respectively. Taking an ordinary private car with a fuel tank capacity of 50 liters as an example, a full tank of fuel will cost about 32 yuan more than before.

Although oil prices have fallen recently, this is only profit selling by futures institutions and does not represent a long-term trend in oil prices. As Russia and Ukraine enter the third and fourth rounds of negotiations, the market begins to focus on the progress of the Russia-Ukraine negotiations, and there will be a short-term price game for oil prices.

After the sharp drop on March 15, international oil prices rebounded slightly on the 16th, and Brent crude oil futures once again returned to the top of the $100 mark. Earlier this month, Brent crude prices topped $139 a barrel, the highest since 2008.

Kpler, an energy consultancy, analyzed that although Russia and Ukraine are still negotiating, it is not easy to reach an agreement given the huge differences between the two sides. “While there is a glimmer of hope in the Russian-Ukrainian talks, at this stage it is difficult to see concessions that either side can accept. It is hard to say that crude oil prices are high under the current circumstances.”

OPEC has so far shown little interest in raising output, despite growing calls from some countries to speed up production increases.

The IEA also warned that total Russian exports are expected to fall by 2.5 million bpd, including 1.5 million bpd of crude oil and 1 million bpd of refined products. Although only a handful of countries, including the United States, have completely banned Russian oil imports, traders, energy companies and shipping companies are still shunning Russian crude amid a cautious mood.

Although Russia’s GDP accounts for less than 2% of global GDP, Russia supplies 11% of the world‘s oil and 17% of the world‘s natural gas.

Goldman Sachs has raised its 2022 Brent crude oil price forecast from $98/barrel to $135/barrel and 2023 Brent crude oil price forecast from $105/barrel to $115/barrel, given the supply woes facing the oil market. bucket.

Bank of America raised its target price for Brent this year and next to $110 and $85 from $95 and $75.

UBS estimates that international oil prices will rise to $125 per barrel by the end of June, and the recent pullback is just the calm before the storm.

The phenomenon of high global oil prices since 2022 not only reflects the geopolitical turmoil caused by Russia’s invasion of Ukraine, but also reflects that the energy policies of many advanced countries in the world, led by the United States, are overly biased towards clean energy and underestimate the world’s dependence on traditional energy.

The sanctions against Russia this time have put Russia’s economy in jeopardy, and the United States and other Western countries are also vigilant about who might “transfuse blood” to Russia, even though the CCP is “playing a double reed”, and even CCTV recently broadcasted Ukraine’s serious injury to Russia for the first time. , but the West is not aware that the CCP is courting both sides.

On March 14, US National Security Adviser Sullivan told US media that the White House is now closely watching whether Beijing provides economic or material assistance to Russia to help Russia evade Western sanctions. Sullivan said no country in the world would be allowed to give Russia a lifeline in these economic sanctions.

Prior to this, U.S. Commerce Secretary Gina Raimondo had warned Chinese companies that if they helped Russia evade sanctions, “the U.S. would cut off the U.S. hardware and software they need to produce their products.” The message also pointed out that if Chinese companies In defiance of U.S. sanctions restricting the supply of microchips and other technology to Russia, the U.S. could essentially put Chinese companies out of business.

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Both real estate and Chinese stocks are green, making the top officials of the CCP restless.

After Liu He’s speech on “prudent tightening policy” and the news that the China Securities Regulatory Commission encouraged Chinese companies to list overseas, some Chinese concept stocks rose, and Pinduoduo rose by more than 60%.

However, the profound impact of the Russian-Ukrainian war on energy has just begun, and the stability of commodities is not achieved in a day.

Global pattern energy reset?

After the Cold War, including the two energy crises in the 1970s, the NATO attack on Yugoslavia in 1999, and the 9/11 terrorist attack in the United States in 2001, the impact on the world energy pattern did not have a fundamental impact.

However, the Russian-Ukrainian war that broke out in February 2022 will bring profound changes in the medium and long term to the world energy structure. The Russian-Ukrainian crisis is different in that:

Russia is one of the most important energy supply countries in the world, and its oil and natural gas production ranks second in the world. It is also the second largest oil exporter and the largest natural gas exporter. The export volume of oil and natural gas ranks in the world‘s export trade accounted for 25%.

In 2021, Russia will export about 230 million tons of oil, second only to Saudi Arabia; its natural gas exports will be about 200 billion cubic meters, ranking first in the world. Europe is the main destination of Russia’s energy exports. Russia’s oil and natural gas exports to Europe account for 50% and 78% of Russia’s total exports, respectively.

The escalation of the crisis between Russia and Ukraine has pushed oil prices to exceed $100/barrel (Brent oil), prompting the restart of nuclear and coal-fired power applications in many countries.

For China, the world‘s largest energy consumer and a major importer of oil and natural gas, it will bring continued inflationary pressure on commodity prices in the upstream.

A process of resetting the energy pattern is quietly surging.

The scale of China‘s energy and resource needs is staggering. The world‘s second-largest economy imports about 70 percent of its oil and 40 percent of its natural gas. China is a net importer of energy, with a net import of 510 million tons of crude oil, 122 million tons of natural gas and 324 million tons of coal in 2021. If energy prices remain high, it may push up related imports and further curb the trade surplus.

Crude oil prices, already at high levels, have surged 27% since the war began, and Chinese iron ore contracts have surged 25% in the first 10 days after the conflict began.

The impact on food may be more pronounced. Wheat prices and corn futures in China are also at record highs, and Xi Jinping delivered a speech on the importance of food security to delegates attending the Second Session of the Communist Party of China on March 6.

In 2021, China‘s imports of energy products from Russia will be 334.29 billion yuan, a year-on-year increase of 47.4%, accounting for 65.3% of China‘s total imports from Russia that year.

Among the large economies, China is one of the most vulnerable to war, the Financial Times reported. In addition to resistance from the West, as the world‘s largest oil importer, China‘s type of economy also makes it vulnerable to shocks that cannot be reversed.

According to the analysis by Rahman of the Financial Times, according to the current round of Western sanctions against Russia, even China, which has the world‘s largest foreign exchange reserves, will find that it may not be able to use the funds in its strategic reserves to wage war overnight. In addition, China is barely self-sufficient in energy or food, and if the U.S. Navy cuts off key shipping lanes such as Malacca, it could block China.

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Bloomberg reported that although Russia is China‘s main energy supplier, and China and Russia have often maintained a unified position in geopolitical disputes with the United States, it is more difficult to buy a large number of Chinese exports and control the dollar international financing system. Western countries, Russia’s economic influence is much less. Moreover, the CCP has always been disloyal, and it can turn its face and not recognize people for its own interests.

On February 26, Bloomberg quoted sources as saying that the overseas subsidiary of the Industrial and Commercial Bank of China has stopped issuing U.S. dollar letters of credit related to the purchase of Russian commodity spot goods.

On February 28, Reuters quoted people familiar with the matter as saying that the Singapore branch of Bank of China had stopped financing transactions involving Rosneft and Russian companies.

A few years ago, after the United States sanctioned Iran and banned its crude oil exports, Iran smuggled crude oil into China by smuggling it as Malaysian or Omani merchant ships, and the CCP gave cash and materials in exchange – however, the United States was aware of this and this The phenomenon is responded to by the media.

Now if the CCP and Russia conduct secret deals, as long as Musk’s low-orbit satellites open their “stars” slightly, there is nowhere to hide the Sino-Russian oil deal.

The Javelin and Stinger missiles on the Russian-Ukrainian battlefield not only subverted the concept of the Cold War since World War II, but also have a shocking penetration of modern information. In the face of digital modern warfare, tying energy to the most primitive barter is undoubtedly a nightmare for the CCP.

On March 15, the National Bureau of Statistics of China released a number of economic data from January to February. The added value of industrial enterprises above designated size increased by 7.5% year-on-year, 3.2 percentage points higher than that in December 2021, and 1.4 percentage points higher than the two-year average growth rate in 2021; the national fixed asset investment (excluding farmers) was 5,076.3 billion yuan, a year-on-year increase of 12.2% %, 7.3 percentage points faster than in 2021.

Fu Linghui, director of the National Economic Comprehensive Statistics Department of the National Bureau of Statistics, said that from the data point of view, “China‘s economy has shown real warmth.”

However, in the real estate sector, which is the most critical economic engine, household purchase loans (medium and long-term loans) decreased by 45.9 billion yuan in February, a decrease of nearly 460 billion yuan year-on-year. This is the first negative growth in 15 years. Data from WIND shows that the growth rate of real estate sales in China‘s 35 cities declined in the first half of March. Among them, the sales growth rate of first- and second-tier cities that rely more on land transfer fees expanded.

The real increase came from government investment in January and February, that is, the more than 600 billion local special bonds issued in January, but after the two sessions in various localities, this number returned to the same place. The reason is that this year is the new year, and the top leaders of various localities are newly appointed officials, and they must have a “good start”. However, after the “Two Sessions”, the local governments went back to where they were. It is better to do one less thing than one more thing. The total local debt has reached 40 trillion yuan, and the debt repayment cycle is coming one after another. These newly-ranked officials, facing increasingly strict accountability and auditing, began to pay attention to the new infrastructure. Invest carefully in the project.

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Regarding the trend of China‘s economy this year, Lu Ting, chief economist of “Nomura China“, predicted at the media sharing meeting of China‘s macroeconomic outlook held on March 8 that overall, China‘s prices will be under pressure this year. Although the problems faced by residents’ consumption at the beginning were not very big, with the sharp rise in global corn and soybean prices, it is expected that the CPI will rise significantly in two to three months this year. Although the probability of a monthly CPI increase of more than 3% is not high, the pressure for this data to rise in the later period will gradually become apparent.

Lu Ting believes that the changes in the energy pattern and the impact on the rise in global raw material prices, as a large importer of raw materials and energy, China will be more affected, and the upward pressure on PPI should not be underestimated.

In this year’s “Government Work Report” of the Communist Party of China, the target for this year’s CPI increase is set at “about 3%”.

However, analysts from all walks of life believe that achieving this goal is a considerable challenge.

Zhou Tianyong, former deputy dean of the Institute of International Strategy of the Party School of the Central Committee of the Communist Party of China (National School of Administration), believes that the current international situation and the rising trend of commodities will form an enclosure pressure on China. China is a major importer of energy, grain, iron ore and other bulk commodities. When international prices fluctuate, Chinese commodities will rise, and vice versa, they will stabilize and decline.

Recently, with the international crude oil price of 100 US dollars a barrel, and the Newcastle Port thermal coal spot price index reported 317.25 US dollars / ton, an increase of 206.16% from the average price in 2021. The IMF (International Monetary Fund) estimates that international food prices may rise by up to 10% in 2022. As energy and feed prices rise, Zhou Tianyong estimates that the international price of cattle, sheep and chicken will also rise by about 15%.

China relies heavily on the scale of imports. In 2021, it imported 634.34 million tons of oil and gas, 323.68 million tons of coal, 164.54 million tons of grain and 9.38 million tons of meat, accounting for 182.97%, 7.95%, 24.10% and 10.55% of domestic production, respectively. Expenses amounted to RMB 2,940.8 billion. Even if imports remain unchanged in 2022, the level of inflation from energy and other commodities is staggering.

In addition, there is a certain consensus in the industry that in the second half of 2022, mainland China is likely to usher in a “lard resonance”, that is, a situation where oil prices and pork prices rise together. Now the prices of food and clothing are rising, and the price of crude oil is also rising. The reason why China‘s CPI is not rising is because the “pig” is still lying on the ground. If there is a “lard resonance” in the market, the CPI must exceed 3%.

The pork index is considered to be a key indicator to measure people’s livelihood. It is considered to be the ballast stone for China‘s economic stability.

According to industry analysis and estimates, the average price of live pigs in 22 provinces and cities has once again fallen below 13 yuan. In the second half of the year or June and July, pork will bottom out and rebound. If the high oil prices can continue into the middle or second half of the year, there will be a “lard resonance” in the market, and the life of ordinary Chinese will be more difficult.

(The article only represents the personal position and opinion of the special commentator)

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Responsible editor: He Jingtian

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