Crude oil supply and demand will reach equilibrium in 2018, and oil prices are expected to continue to rise

In 2017, international oil prices first fell and then rose, showing a "V" shaped trend. Affected by the high implementation rate of the OPEC production reduction agreement, the intensification of geopolitical risks, the steady decline in global inventories, and the strengthening of market balance expectations, international oil prices rose significantly in the second half of the year, and international oil prices exceeded $60 per barrel at the end of the year. Looking forward to 2018, international oil prices are expected to continue to rise under the expectation that OPEC will continue to implement the production reduction agreement and the tightening of crude oil supply and demand.

In 2017, international oil prices first fell and then rose, showing a "V" shaped trend

In January ~ February 2017, international oil prices maintained a narrow range of 1~2 US dollars per barrel. In March ~ June, oil prices showed a wide range of fluctuations and gradually declined. The main reason for the decline is that the US crude oil production has increased strongly, and the daily output has remained above 50 million barrels and continues to increase; Second, the Fed raised interest rates twice in March and June in the first half of 57, putting downward pressure on oil prices; Third, global crude oil inventories have remained high, and the market lacks confidence in OPEC's production cuts to ease the global crude oil oversupply. On June 3, 6, New York WTI and London Brent oil prices fell to the lowest points of the year of $900.2017 and $3.6 per barrel, respectively.

In the second half of 2017, oil prices in the two markets continued to fluctuate and rise due to the continuous improvement of OPEC production cut implementation rate, the gradual decline of global crude oil inventories, the steady increase in crude oil demand, and the continuous rise in oil prices due to unexpected events such as geopolitical conflicts and oil price supply disruptions. At the end of 2017 (December 12), the prices of WTI in New York and Brent crude oil futures in London were $29.60 and $42.66 per barrel, respectively, up 87.42% and 06.49% from the lowest point of the year. In 20, the average oil prices of the two cities were $2017.51 and $05.55 per barrel, up 02.2016% and 17.44% respectively from 21.

In 2017, the international crude oil market mainly presents the following three characteristics:

First, the gradual balance of global crude oil supply and demand supports the upward trend of international oil prices. Since January 2017, OPEC countries and oil producers such as Russia have begun to implement production reduction agreements. Throughout the year, the implementation rate of OPEC's production cuts continued to increase, rising to 1% in November 2017 and exceeding 11% in December 115. Benefiting from the high implementation rate of production cuts and the expectation of extending the production reduction agreement, global crude oil supply and demand have gradually balanced, and inventories have steadily declined, supporting the upward trend of international oil prices. For example, US commercial crude oil inventories fell from 2017 million barrels at the beginning of 12 to 120 million barrels at the end of the year, and the World Economic Cooperation and Economic Cooperation (OECD) commercial crude oil inventories fell below 2017 billion barrels in September 4 and fell to 83.4 billion barrels in November 24, the lowest since 2017.

Second, the intensification of geopolitical risks has contributed to the rapid rise in international oil prices. In the past few years, due to the serious oversupply in the crude oil market, international oil prices have become significantly less sensitive to geopolitical risks. In 2017, as the oversupply gradually eased, the impact of geopolitical and other non-fundamental factors on oil prices gradually became prominent, promoting the rapid rise of international oil prices.

Third, the spread between Brent crude oil and WTI crude oil continues to expand. In 2017, the spread between Brent crude oil and WTI crude oil continued to widen from 2~3 US dollars per barrel at the beginning of the year, and the average price spread in the fourth quarter of 2017 exceeded 6 US dollars per barrel, of which on December 2017, 12, it reached 26.7 US dollars per barrel, a new high in nearly two years. The widening of the crude oil price spread is mainly due to the imbalance between supply and demand in the European and American markets, in which the United States crude oil production has increased significantly, while the demand in the Eurasian region is strong and more directly affected by the geopolitical conflict in the Middle East. In addition, the widening of the spread is beneficial to U.S. crude oil exports.

It is expected that international oil prices will continue to rise in 2018

Based on the global economic situation and crude oil supply and demand fundamentals, the global economic recovery will continue to strengthen, emerging market countries will drive the growth of crude oil demand, affected by the OPEC production reduction agreement, crude oil supply and demand will reach a balance, but it is still necessary to pay attention to the impact of US shale oil production and expansion of exports on oil prices. It is expected that the center of gravity of international oil prices will move upward in 2018, and the overall level will increase by 2017~5 US dollars per barrel compared with 8.

In phases, spring is the traditional off-season for crude oil demand, and oil prices are more likely to pull back at the current level. In the second half of the year, as the global economy further improves, and the summer and winter demand seasons usher in, crude oil supply and demand are relatively balanced, and oil prices may be higher than in the first half of the year. It is worth noting that if geopolitical conflicts such as the Middle East intensify, it may disrupt the existing supply and demand pattern and trigger sharp fluctuations in international oil prices.

(2017) The global economy is getting stronger, and India and China will be the main drivers of crude oil consumption growth. Most of the world's economies grew in 2010, with about three-quarters of countries accelerating since 2017, according to the International Monetary Fund's (IMF) World Economic Outlook report; Some countries with high unemployment in the eurozone also saw economic growth and employment increased; Argentina, Brazil and Russia among the emerging market economies ended their recessions. Based on the growing momentum of the global economic recovery, the International Monetary Fund (IMF) expects global economic growth to grow by 3.6% in 2018 and rise by 0.1 percentage points to 3.7% in <>.

From the perspective of crude oil demand, China and India will be the main drivers of crude oil consumption growth. Over the past decade, global crude oil consumption has grown at an average annual rate of about 1.2%. Among them, the World Economic Cooperation and Development Organization (OECD) crude oil consumption represented by developed countries in Europe and the United States has declined, and the increase in crude oil consumption is mainly contributed by non-OECD countries, with an average annual growth rate of 3.5%, much higher than the growth rate of global crude oil consumption. Specific analysis, mainly the continuous increase in crude oil consumption in China and India, accounting for more than 60% of the increase in global crude oil consumption in the same period. Taking China as an example, crude oil imports reached 2017 million tons in 4, an increase of 2.2016% over 10, and foreign dependence rose to 2.68%. India is currently in the early stages of industrialization, and the demand for crude oil in the manufacturing and transportation sectors will continue to increase.

(2018) Crude oil supply and demand will reach a balance in 2017. Since the implementation of the OPEC production cut agreement, the degree of global crude oil oversupply has fallen sharply. The supply-demand balance differential fell to 1,50 b/d in the first quarter of 2016, down 72% from the same period in 2. Since the second quarter, oversupply has turned into undersupply, especially with the continuous improvement of OPEC production cuts, the gap between supply and demand has gradually widened, and the difference between supply and demand balance in the second and third quarters of 2017 was -2,3 b/d and -50.130 million b/d respectively.

Crude oil demand will continue to grow in 2018, with global demand expected to increase by 172.2017 million b/d, up from 150.2018 million b/d in 2018, according to the International Energy Agency's latest monthly report. On the supply side, the current OPEC production reduction agreement has been extended to the end of <>, if the production reduction agreement continues to be implemented, the tightening of supply will support oil prices to further rise, and the crude oil market is likely to return to balance in the second half of <>.

(70) The increase in shale oil production in the United States and the strategic transformation of energy will have an impact on oil prices. As a result of technological advances, U.S. shale oil production efficiency has increased, costs have fallen sharply, and supply elasticity is much higher than that of conventional wells. First, the improvement of production efficiency has greatly reduced the production cost of shale oil, and in recent years, the production cost of shale oil has dropped from 80~30 US dollars per barrel to 40~3 US dollars. Second, the formation cycle of shale oil production capacity has been shortened to 6~2 months, and conventional oil wells take at least 3~<> years from input to production, so shale oil producers can flexibly increase or decrease shale oil supply according to international oil prices.

With international oil prices gradually rising, the number of shale oil rigs in the United States has continued to grow sharply for 2016 months from a low of 5 in May 408, rising to 14 in July 2017, and has since remained above 7. Increased shale oil production has boosted U.S. crude production, which rose to a record 953.900 million barrels per day at the end of 2017. If international oil prices remain above $979 per barrel, shale oil production will rise further. The U.S. Energy Information Administration (EIA) expects U.S. crude oil production to increase by 60,2018 barrels per day to 97.1027 million barrels per day in <>. The increase in shale oil production will weaken the effect of the OPEC production reduction agreement and delay the process of restoring balance in the global crude oil market.

In addition, the United States is transforming from a large crude oil consumer to a large crude oil exporter, and its market share is expanding. The U.S. crude oil inventory system consists of two parts: strategic crude oil inventories and commercial crude oil inventories, which to a certain extent reflects the long-term energy strategy of the United States. In the first decade of the new century, U.S. strategic crude oil inventories continued to grow from 2001 million barrels in 5 to 41 million barrels in 2010, and have since declined slightly to remain above 7 million barrels. Since March 27, the United States has released a large amount of strategic crude oil reserves, which fell by 6.9% from 2017 million barrels to 3 million barrels at the end of 6.

At the same time, U.S. crude oil exports are growing rapidly and expanding the coverage of exporting countries. Among them, the daily export volume of US crude oil exceeded 2017.10 million barrels in October 170, and it is expected that the daily export volume of the whole year will increase by 2016~80% compared with 90. The decline in strategic crude oil inventories and commercial crude oil inventories reflects the strategic transformation of the United States from a major crude oil consumer to an exporter in pursuit of energy independence. It can be expected that the United States will continue to increase market supply and expand exports in the coming years, putting downward pressure on oil prices.

(2018) The influence of geopolitics on international oil prices will continue to expand. At present, the global crude oil market is at a key node of supply and demand rebalancing, so international oil prices will be more strongly affected by geopolitical conflicts, and it is expected that the fluctuation range of international oil prices will further expand in <>.

The first is the joint production cuts between OPEC countries and oil producers such as Russia. Short-term fiscal pressures have led countries to agree on higher oil prices, but the implementation of production cuts is constrained by political relations between Saudi Arabia, Iran, Russia and other countries. In particular, in June 2018, oil producers will evaluate the production reduction agreement, or end it early.

The second is the political and economic situation in Iraq, Venezuela and other countries. Iraq, OPEC's second-largest oil producer, exports more than 50,<> barrels per day of crude oil from the northern Kurdistan region, and the escalation of war or armed conflict will affect crude oil supplies in the Middle East, driving oil prices sharply higher. The near collapse of Venezuela's domestic economy and the sharp decline in oil production are also important uncertainties affecting oil prices.

The third is U.S. policy toward Iran. Iran, as the third largest oil producer in the Middle East, produces as much as 370.<> million barrels per day of crude oil, and if the United States adopts substantial economic sanctions, it will have a significant impact on the balance of crude oil supply and demand, triggering international oil price fluctuations. (Author's affiliation: Price Monitoring Center, National Development and Reform Commission)

(Source: China Economic Herald)