Oil Market: Future Risk of WTI Crude Oil Price

2021-04-22 10:03:37

On Thursday, WTI crude oil broke through a further $61.00 to a low of $60.89, breaking its lowest level in a week since April 14, down more than 5 per cent in two days. It seems that it is not difficult to find the reasons for the decline in oil prices. The increase in EIA crude oil stocks, the progress of the Iran nuclear agreement, the Covid-19 in India and Japan, and the expectation of the Federal Reserve to tighten monetary policy have all become important forces dragging down the fall in oil prices.


Among the bearish masses, the market undoubtedly pays more attention to the direct factors, namely, the increase in EIA crude oil stocks on Wednesday and the current progress of the Iran nuclear agreement. U.S. EIA crude oil inventory changes in the week ended April 16 actually announced an increase of 594000 barrels, or 0.1 percent, to 493 million barrels, and is expected to decrease by 3.55 million barrels. However, EIA inventory data showed that gasoline demand continued to recover to its highest level since March last year, while capacity utilisation at US refineries was 85 per cent, suggesting that the US summer driving season could boost demand.


On the other hand, progress has been made in negotiations on the Iran nuclear deal, with the administration of US President Joe Biden expressing its willingness on Wednesday (April 21) to relax restrictions on Iran's oil, financial and other industries. However, considering that Iran currently wants to fully implement the existing Iran nuclear agreement, it will not accept the expanded Iran nuclear agreement (JCPOA+), while the United States will not accept the first action and lift all sanctions. It is expected that the negotiations between the two sides will be a continuous and multi-round process of talks, and it will be difficult to see clear results in the short term.


The above analysis shows that although the increase in EIA crude oil inventories and the progress of the Iran nuclear agreement are important factors leading to a further decline in oil prices overnight, the short-term crackdown on oil prices is very limited. So, the main downside logic of oil prices now seems to be more focused on the epidemic and the Fed's tightening of monetary policy.


Covid-19 Continues to Break Out

When it comes to the direct impact on oil prices, it seems difficult to get rid of the judgment on the demand side. Unfortunately, Japan and India, as big demand for crude oil, are once again locked in blockades because of the surge in the epidemic. In Japan, Japan will decide whether to declare a state of emergency in four prefectures on Friday (April 23), according to the Asahi Shimbun. The situation is even worse in India, where more than 200000 new cases have been recorded for seven consecutive days, while nearly 300000 new cases have been confirmed in India in the past 24 hours, according to data released by the Indian Ministry of Health on Wednesday. A record high.

The Federal Reserve Tightens Monetary Policy

Apart from the demand side, there is more evidence that the Fed may accelerate monetary tightening. Federal Reserve Chairman Jerome Powell said on Tuesday (April 20) that the US economic recovery seems to be strengthening and that inflation will rise slightly this year, but the Fed does not seek inflation of much more than 2%, nor does it seek inflation of more than 2% in the long run.

OPEC+ May Confirm or Adjust its Plan

According to CME Fed Watch, the probability of the Fed keeping interest rates in the 0.5% range in June is 89.8%, while the probability of raising interest rates by 25 basis points is 9.9%. There is no doubt that the Fed will first cut QE, before raising interest rates, and whether it wants to see it or not, it is also expected to limit the progress of the global economic recovery, putting pressure on oil prices.

In addition, the NOPEC bill against OPEC+ in the United States has also aroused market concern, and the United States has earlier hinted that OPEC+ manipulates oil prices by reducing production. Russian Deputy Prime Minister Novak said on Wednesday that he believed that the US bill against OPEC would not pose a threat to the OPEC+ at present, but Novak stressed that the OPEC+ might confirm or adjust its plan. This bothered the market. Earlier, OPEC+ was discussing reducing the size of the April 28 meeting and was considering holding only a joint ministerial oversight committee (JMMC), next week rather than a full ministerial meeting, when the market thought that OPEC+ 's decision to gradually increase production from May to July would not be changed.

// Summary

Once the US government action causes OPEC+ to gradually increase production is expected to be affected, it is expected to make WTI crude oil prices fluctuate sharply, investors need to be vigilant. Investors can focus on the ECB's interest rate decision, which is expected to affect oil prices.



Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.


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