How exaggerated is the rise in oil prices?

Oct 20, 2020 at 17:28
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5 Replies
会员从Aug 19, 2020开始   15帖子
Oct 20, 2020 at 17:28
The fluctuation of oil price is always the result of political game in oil producing countries. Supply and demand are only superficial, and the core interests of oil producing countries are fundamental!

At the end of last year, when the oil price was 60, I said in public that the crude oil could fall below 27 this year, and few people believed in it. The core reason is that in a stable economy, the production costs of each oil producing country are different (oil price is 60, cost is around 30),

No oil producing country is really willing to sacrifice its market share to maintain the production reduction agreement, or increase production explicitly or implicitly. This weak alliance will collapse and fluctuate greatly as long as a straw comes.

But now OPEC is still relying on production reduction to carry oil prices. The members of the production reduction alliance are not very different from those at the beginning of the year, so why can't it drop again?

There is an old Chinese saying that once bitten by a snake, one is afraid of straw rope for ten years. This year's new crown has lasted longer than expected by all oil producing countries. Except for China, the recovery rate of demand in other developed countries is much slower than expected, which means that there are fewer buyers. Last year, the world's economic growth was stable, and buyers were not worried. As long as they were willing to sell cheaply, they would not worry about sales. At present, even if the oil price (average price is 40, the cost remains unchanged), it is not necessarily able to sell more barrels of oil even if it is sold at a low price. It is not worthwhile to bear the risk of being condemned and isolated by OPEC after it is discovered. Take a look at the following crude oil inventory chart to know that the current demand for crude oil is still very poor!

The demand is very poor, isn't the oil price going down again? The answer is not. Poor demand does make oil prices fall if there is more supply on the supply side. If the supply side continues to shrink, and the decrease in supply is greater than the decrease in demand, then the oil price will rise instead!

The fluctuation of crude oil price has always been affected by the supply side, which is much higher than that of the demand side. Because the supply is well controlled (it can be adjusted by adjusting the valve and closing two wells), and the change of demand is always low in elasticity and slow in speed. Therefore, the first thing to trade crude oil is to look at the supply side, that is, the information from the oil producing countries, and then the information from the demand side.

Recently, news has come from the two major oil producing countries,

First, Saudi Arabia warned oil bears not to be bearish on oil prices for the first time;

Second, Saudi Arabia and Russia hold two meetings in a week to discuss OPEC's production (the last such intensive meeting was in April, when it was to end the price war). The two major producers of crude oil say that they want to stabilize the energy market, so investors who are short of oil prices will be very painful. If there is a news of production reduction at any time, the price will soar immediately, so it is better to be more careful!

Let's see whether OPEC will come out to postpone the increase of crude oil production in the near future. The original plan was to increase production in January next year. Once the news of delayed production increase is confirmed, the oil price will run to 50. As for the specific trading strategy, you can see my first column every day.
风控是交易的基础!微Macd1668
会员从Jul 20, 2019开始   373帖子
Oct 21, 2020 at 09:12
Brent Crude Oil will still be between 39 and 49 USD until next year. The OPEC+ will stay at or around their current oil output rates and the pandemic will still be at it's current fatalities until spring or even summer 2021.
patience is the key
会员从Oct 05, 2020开始   30帖子
Nov 05, 2020 at 07:57
It is true that no oil producing country will willingly sacrifice their market share and the price of crude oil might stay around 40 USD. This might be the case until the next year if the pandemic persists. As of now, the price is about 38.6 USD.
会员从Jul 20, 2019开始   373帖子
Nov 05, 2020 at 08:57
mitchelstrack posted:
It is true that no oil producing country will willingly sacrifice their market share and the price of crude oil might stay around 40 USD. This might be the case until the next year if the pandemic persists. As of now, the price is about 38.6 USD.
Brent Crude is above 40. Maybe you mean WTI?
patience is the key
会员从Nov 07, 2020开始   25帖子
Nov 26, 2020 at 07:23
Market has always been unpredictable. You can never market’s moves. It mainly depends on supply and demand.
会员从Nov 06, 2020开始   18帖子
Nov 30, 2020 at 10:15
I am not sure if the oil price will become 50. But I am surely going to take a look at your column every day.
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