SunSirs: Energy, Crude Oil Suffered a "Black Friday" Price Slump

On November 29, at 10:00 p.m., crude oil price suddenly dived and fell by more than 2% in half an hour. Then it went all the way down and continued to close. As of the closing, the price of WTI crude oil futures market in the United States settled at $55.17/barrel, down $2.94, while Brent crude oil futures price fell sharply, down $62.43/barrel, down $1.44. WTI crude oil fell nearly 5%, the biggest decline in more than two months, Brent crude oil also fell 4.01%.

Why did crude oil suddenly plummet on "Black Friday"? The direct reason was also caused by two news. Industry analysts pointed out that the resignation of the Iraqi Prime Minister was the fuse of the sharp drop in oil prices, which made the situation in Iraq expected to stabilize and the risk premium of the crude oil market subsided. In addition, recent signs indicated that at the upcoming OPEC meeting, the possibility of OPEC, Russia and other major non-OPEC oil producing countries to reach a crude oil production reduction agreement was reduced, which became the last straw to crush the oil price.

Despite the geopolitical risk premium, the market was still mainly affected by the news of OPEC + production reduction expectation. The 0pec + meeting held in Vienna on December 5-6 will discuss whether to continue to extend the production reduction agreement that will expire at the end of March 2020. The meeting coincides with the critical moment of Saudi Aramco's IPO. According to the latest news, Saudi Aramco plans to sell 1.5% of the company's shares through IPO and raise up to SAR 96 billion (about USD 25.6 billion), which will bring the market value of Saudi Aramco to USD 1.7 trillion. As Saudi Aramco's valuation mainly depends on the level of oil price, the market expects that Saudi Arabia's expected oil price level is above $60/ barrel. Before Saudi Aramco's IPO, Saudi Arabia's willingness to raise oil price will be stronger. The market generally expects that at next week's 0pec + meeting, the agreement on production reduction will be extended to at least June 2020, or even the possibility of extending to the end of 2020 or increasing the intensity of production reduction will not be ruled out, which is also the main reason for investors to be bullish on oil prices in the near future. This is the general psychological expectation of investors before, and also the news guidance of crude oil price rebound in the week of November 16.

But at present, it may be difficult to reach an agreement within OPEC +. The crude oil production of Russia, Iraq, Nigeria and other countries are all above the quota stipulated in the production reduction agreement, and Russia is especially "not trustworthy". Data shows that from November 1 to 26, Russian crude oil production was 11.244 million barrels/ day, 54,000 barrels/ day more than the quota stipulated in the production reduction agreement, which will be the eighth consecutive month without 100% implementation of the production reduction agreement. As the country with the largest crude oil production in the 0pec + production reduction alliance, Russia's attitude is also crucial to whether the production reduction agreement continues to be extended. Previously, Russia has not been able to support the extension of the production reduction agreement, which makes the results of the 0pec + meeting face greater uncertainty.

In the future, SunSirs believes that this week (December 2-6) the market will usher in a series of heavy data, including European and US manufacturing PMI, US ISM non-manufacturing PMI and US November non-agricultural report. At present, these macro data may not be optimistic about the future economic expectation, and crude oil is still in a short-term environment. However, in the short term, we still need to pay attention to geography and the trend of OPEC + meeting, especially we can't underestimate the imminent IPO of Saudi Aramco. In order to maintain a good oil price environment, Saudi Arabia has made a major compromise decision. Therefore, it is expected that in the near future, crude oil will be subject to wide shocks, and remain empty in the long term.

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