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SunSirs: Energy, Most Refineries in the World Cut Production, Crude Oil Prices Fell again

March 30 2020 09:45:02     SunSirs (Selena)

On March 26, WTI crude oil futures market prices in the United States fell sharply, with major contracts down $1.89, to $22.60/ barrel. Brent crude oil futures market prices fell, the main contract at $28.65/ barrel, down $1.34. In particular, WTI declined significantly, reaching -7.72%. Although the U.S. Senate voted unanimously on Wednesday to pass a $2 trillion bill aimed at stimulating the market, this did not improve the crude oil market, because the increasingly severe global epidemic situation of COVID-19 led to the contraction of economic activity, resulting in the increasingly obvious decline in fuel demand.

Global refinery operating rate continues to decline

Due to the impact of COVID-19, more and more countries have taken measures to restrict travel, resulting in a sharp decline in fuel demand, forcing more refineries to gradually reduce production to cope with the falling demand. Refineries also need to ease inventory pressures and losses on refined products. According to foreign media reports, refineries from Texas to Asia have been reducing production to varying degrees, especially the No.1 refinery in India, which has cut production by as much as 25% - 30%; refineries. In Japan, South Korea and Thailand have also reduced production capacity, which may be considered to cut more output later, and it is expected that more refineries will shut down their units for maintenance. At present, China's orderly resumption of work and recovery of refinery production, but the main refineries are still under the pressure of high inventory, mainly reducing load production. Most of the local refineries are back to work, and the operating rate of underground refining units is slightly rising, but the inventory may be under pressure later. Overall, the impact of global integration, falling fuel demand and stagnant trade will force refineries to further reduce production.

No progress has been made in Saudi dominated OPEC and Russian peace talks

Since the collapse of the production reduction agreement between the organization of Petroleum Exporting Countries (OPEC) headed by Saudi Arabia and Russia, no new settlement agreement has been reached between the two sides. President trump of the United States has said that he may intervene to coordinate the current situation, but there has been no practical effect in recent days. Saudi Arabia and Russia are still in the process of growth. Saudi Arabia plans to supply 12.3 million barrels of crude oil to the market every day in April Oil and plans to export more than 10 million barrels per day from May. In terms of the impact of COVID-19, it is very unfavorable for the oil price, but in the later stage, the cost of crude oil exploitation in Russia is high, and the economy of the country is very dependent on crude oil export. At the current oil price level, Russian refineries will be in the loss, and the survival of refineries and oil service enterprises will be more and more difficult. At the same time, Russian finance may also be in crisis. Similarly, Saudi Arabia's situation is not optimistic. Although Saudi Arabia's mining cost is far lower than Russia's, Saudi Arabia's finance mainly depends on the contribution of crude oil. The long-term low oil price environment will make Saudi Arabia's fiscal deficit level higher and higher. Considering the situation of Russia and Saudi Arabia, it is possible to reach reconciliation in the later stage, but an opportunity is needed at present.

Lower demand is expected to continue to weigh on oil prices

According to SunSirs, under the influence of COVID-19, the demand for crude oil is in the process of continuous decline. At present, the overseas epidemic is still on the rise, especially in the United States, which is the largest oil consumer in the world. At present, the epidemic is also the most serious. The Trump government just announced that many states in the United States are in a state of major disaster. The demand for crude oil in the United States may fall in the near future. Similarly, the European market is not optimistic. Goldman Sachs expects global crude oil demand to fall 10.5 million barrels/ day in March and 18.7 million barrels/ day in April. The annual consumption will be 4.25 million barrels/ day less than that in 2019. This data is still very grim, but it is expected that in the later stage, the agency will continue to reduce its crude oil demand expectations. In a comprehensive consideration, it is expected that the oil price will remain low in the short term. It is not ruled out that further exploration is possible. Due to the disturbance of recent news, it may continue to fluctuate broadly and increase amplitude.

 

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