Crude oil prices have strong support as supply decreases due to severe cold weather

1.Marketreview

Thisweek'smaincrudeoilfuturescontractfluctuatedduringtheweek.AsofFriday'sclose,theSCcrudeoilmaincontractclosedat566.3yuan/barrel,down0.65%fromlastFriday'sclose.

ThegeopoliticalcrisisintheRedSeaescalatedintheearlypartoftheweek,themarketwasworriedaboutthedemandoutlook,andexpectationsofaninterestratecutbytheFederalReservewereshaken.Oilpricesfell.Lateintheweek,EIAcrudeoilinventoriesfellmorethanexpected,theIEAreviseditsdemandforecastupwards,andtheextremecoldweatheraffectedU.S.oilproduction,causingoilpricestorebound.

AsofFriday'sclose,themainBrentcrudeoilcontractclosedatUS$79.15/barrel,up1.06%fromlastFriday;themainWTIcrudeoilcontractclosedatUS$74.07/barrel,up1.79%fromlastFriday.

2.Supplyanddemandanalysis

Crudeoilsupplysituationthisweek

OrganizationofthePetroleumExportingCountries(OPEC)productionanalysis

OPECoilproductioninDecemberwas26.7millionbarrelsperday,ayear-on-yeardecreaseof7.7%,andaslightincreasefromNovemberproduction.

U.S.crudeoilproductioncontinuestoremainathistoricallyhighlevels.AsoftheweekendingJanuary5,2024,theaveragedailyproductionofU.S.crudeoilwas13.2millionbarrels,whichwasthesameastheaverageproductionofthepreviousweekandanincreaseof1millionbarrelsfromtheaveragedailyproductionofthesameperiodlastyear.Thatweek,U.S.crudeoilexportsaveraged3.322millionbarrelsperday,adecreaseof1.970millionbarrelsperdayfromthepreviousweek.

Thenumberofoilandgasrigscontinuestodecline.BakerHughes'U.S.oilrigcountfellbytwoto499intheweekendedJanuary12.

OilproductioninkeyU.S.shaleoil-producingregionsisexpectedtodeclineforthefifthconsecutivemonthinFebruary,theEIAsaidinitsmonthlydrillingproductivityreportonTuesday.TheEIAsaidU.S.oilproductionisexpectedtofallto9.68millionbarrelsperdayinFebruary,mainlyduetodecliningproductionintheEagleFordandBakkenregionsandslowingproductiongrowthinthePermianBasin,thetopproducingarea.Inaddition,inNorthDakota,thelargestoil-producingstateintheUnitedStates,oilproductioninthestateisexpectedtohavedroppedbymorethanhalfduetoextremecoldandoperationalchallenges.Oilproductioninthestatefellby650,000-700,000barrelsperday,accordingtotheNorthDakotaPipelineAuthority.

3.Russiancrudeoilsupply

Russia’sseabornecrudeoilshipmentsrecordedgrowthinthelatestweekdespitebeingaffectedbyshippingattacksinthesouthernRedSea.RussiahasfailedtodeliverontheexportcutsitpromisedtoitsOPEC+allies.Tankertrackingdatamonitoredbyrelevantagenciesshowthatapproximately3.43millionbarrelsofcrudeoilwereshippedoutofRussianportsperdayinthefourweekstoJanuary14,aweeklyincreaseof94,000barrelsperday.Thevolatileweeklyaverageincreasedby166,000barrelsto3.45millionbarrels.Whilethat's134,000barrelsbelowaverageexportlevelsinthetwobasemonthsofMayandJuneit'sstilllessthanhalfoftheproductioncutsMoscowhascommittedtoitsOPEC+partnersinthefirstquarterof2024.

Crudeoildemandthisweek

TheIEAhasraiseditsdemandforecastforthethirdconsecutivemonth,predictingthatglobaloilconsumptionwillincreaseby1.24millionbarrelsperdayin2024,anincreaseof180,000barrelsperdayfromthepreviousestimate.Theagencynotedthatthiswasduetoimprovedeconomicgrowthandlowercrudeoilpricesinthefourthquarter.

OPEConWednesdayforecastoildemandgrowthof2.25millionbarrelsperdaythisyear,unchangedfromitsDecemberforecast.TheOrganizationofOilProducingCountriesalsosaidthatoildemandwillgrowstronglyby1.85millionbarrelsperdayin2025to106.21millionbarrelsperday.

InDecember,theprocessingvolumeandoperatingrateofU.S.refineriescontinuedtoincrease.AsofDecember2023,theaveragedailyprocessingvolumeofU.S.refineriesthatmonthwas16.9millionbarrelsperday,whichwashigherthanthesameperiodinhistory.TheU.S.refineryoperatingratewas92.38%inNovember,whichisonthehighside.

AsofJanuary18,2024,theoperatingrateofChina'srefinerieshasrebounded,withtheoperatingrateofmainrefineriesat67.13%,higherthanthesameperiodinhistory.

PreliminarycalculationsshowthattheannualGDPwas126,058.2billionyuan,calculatedatconstantprices,anincreaseof5.2%overthepreviousyear,reachingthetarget.Lookingatquarters,GDPgrewby4.5%year-on-yearinthefirstquarter,6.3%inthesecondquarter,4.9%inthethirdquarter,and5.2%inthefourthquarter.Onaquarter-on-quarterbasis,GDPgrew1.0%inthefourthquarter.

DatafromtheGeneralAdministrationofCustomsshowsthatChina’scrudeoilimportsinDecemberwere48.36milliontons,acumulativeyear-on-yearincreaseof11.0%fromthepreviousyear,andthegrowthratecontinuedtoslowdown.ThedeclineinChina'simportgrowthhastriggeredmarketconcernsaboutweakdemandfromChina.

4.Inventoryanalysis

ˆU.S.crudeoilinventoriesfellby2.5millionbarrelsintheweektoJanuary12to429.91millionbarrels,comparedwithexpectationsforadecreaseofabout300,000barrels.CrudeinventoriesattheCushing,Oklahoma,warehousewhereNYMEXcrudeoilfuturesaredeliveredfellby2.1millionbarrels,theEIAsaid.U.S.gasolineinventoriesincreasedby3.1millionbarrelsto248.07millionbarrels,comparedwithexpectationsforariseofabout2.2millionbarrels.Duringtheweek,distillatestocks,whichincludedieselandheatingoil,roseby2.4millionbarrelsto134.75millionbarrels,comparedwithexpectationsforariseofabout900,000barrels.

IV.Investmentstrategiesandsuggestions

TheRedSeacrisiscontinuestoescalateandhasevolvedintoamilitaryconflictintheMiddleEast.Atthesametime,U.S.crudeoilproductionhasbeenaffectedbyseverecoldweatherandthesupplyhasbeenreduced,whichhasstrongsupportforoilprices.Onthedemandside,OPECandIEAmaintainedrelativelystrongdemandestimatesforglobaloilthisyearandnextyeartoboostoilprices,butmarketconcernsaboutfuturedemandstillexist.

Intermsofinventories,alarger-than-expecteddecreaseincrudeoilinventoriesthisweekisbullishforoilprices.ThelatestU.S.inflationdataexceededexpectations,shakingexpectationsforaratecutbytheFederalReserve.Takentogether,withsupplysupport,demandboostingandinventoryreduction,oilpricesareexpectedtoreboundslightlynextweek.