SunSirs: Supply is Tight and Demand is Rebounding, with WTI Crude Oil reaching Its Highest Point in nearly Three Months

As of July 24th, international crude oil futures have risen for three consecutive trading days. On Monday, the main contract settlement price for US WTI crude oil futures was $78.74 per barrel, up $1.67 or 2.2%. WTI crude oil has reached its highest point in the past three months. The settlement price of the Brent crude oil futures main contract was $82.74 per barrel, an increase of $1.67 or 2.0%. The oil market has been boosted by the expected tightening of supply and continued fermentation, as well as the rebound in demand.

Supply tightening expected to continue fermenting

Against the backdrop of OPEC's continuous tightening of production policies, the expectation of tight crude oil supply in the next few months of the second half of the year has gradually been amplified, especially in July and August when the market also took on Saudi Arabia's separate reduction of 1 million barrels per day in supply and Russia's reduction of 500,000 barrels per day in exports.

In addition, the US oil production has fallen into a bottleneck. According to Baker Hughes' data last Friday, the total number of US drilling platforms fell to 669 last week. So far this year, Baker Hughes estimates that the number of active drilling platforms has decreased by more than 100. The number of drilling rigs last week also decreased by 406 compared to the number before the epidemic in early 2019. In the face of the current increasing demand for oil, the tight supply in the oil market has become prominent, and market sentiment has also been mobilized.

In a recent report by Citigroup, it was stated that oil prices have already reflected expectations of tight supply. In addition to the impact of Saudi Arabia's production cuts, there is also strong demand for gasoline and aviation fuel in the summer.

Seasonal demand rebounds, driving season highlights

At present, North America is in the peak consumption season of the driving season, and there are data indicating significant growth in demand for refined oil products. Goldman Sachs officials recently stated that demand has reached a historic high, and they expect a significant gap to occur in the second half of the year, with a gap of nearly 2 million barrels per day in the third quarter.

In addition, as the second largest oil consuming country, China's demand is also recovering, coinciding with the peak travel season during the graduation season. Boosted demand in the gasoline and aviation coal markets. In addition, the market is optimistic about China's further stimulus measures, and infrastructure will still be weak in the second half of the year, which will correspondingly drive diesel demand.

From the inventory data, the latest data report released by the Energy Information Administration (EIA) shows that the oil inventory is declining. A survey conducted on Monday showed that US crude oil and finished oil inventories were also likely to decline last week. On average, the four analysts interviewed estimated that as of the week ending July 21, US crude oil inventories are expected to decline by approximately 2 million barrels. This will further increase supply tension.

The Federal Reserve's interest rate hike is coming to an end

On a macro level, oil demand has always been constrained by the demand brought about by the Federal Reserve's interest rate hike. The market generally expects the Federal Reserve to raise its target interest rate range by 25 basis points to 5.25% -5.50% on Wednesday. The trading in the US interest rate futures market indicates that this week's rate hike will be the last of the year, which also brings some optimism to the market. The market has generally digested the expectations of the Federal Reserve and the European Central Bank raising interest rates by 25 basis points this week. At present, it can be said that the bearish situation has been exhausted.

Regarding the future trend of crude oil, oil analysts from Business Society believe that in the short term, supply tension is expected to continue to rise, as supply restrictions from Saudi Arabia and Russia will continue until August, which will help the oil market maintain a strong trend. The rebound in demand will also bring certain benefits to the oil market. In the medium term, the oil market still faces certain uncertainties. On the one hand, the situation between Ukraine and Russia may intensify, and geopolitical tensions will have an impact on the oil market. At the same time, there have been recent bad news from the European and American banking industries, and the possibility of a banking crisis erupting again could have a negative impact on oil prices. Overall, the oil market is relatively strong in the short term, and there is still uncertainty in the medium term.

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