CITIC Futures: Crude oil supply may remain relatively low in the fourth quarter, demand is expected to gradually bottom out, and inventories may continue the current pace of destocking.

Zhitong Finance APP was informed that CITIC Futures released a research report stating that from the perspective of the three attributes of crude oil prices, the long and short checks and balances in 2022 will continue in 2023, but the intensity of the contradiction will be weaker than in 2022, and the amplitude of oil prices will narrow accordingly. In the first half of 2023, the Federal Reserve's interest rate hike is coming to an end, which will weaken the downward financial pressure. In the second half of the year, OPEC's expansion of production cuts will strengthen the upward geopolitical support. The full-year oil price range is expected to be approximately US$70-100, with the maximum amplitude halved to US$30.

The following is the full text of the research report:

1. Crude oil price

Trend review

International crude oil futures. At the beginning of the year, crude oil futures prices fluctuated within a narrow range due to the combined impact of China's post-epidemic economic recovery and the expected slowdown in overseas economic growth. Frequent risk incidents in the U.S. and European banking industries in March triggered financial risk aversion, and U.S. stocks and oil prices fell sharply in the short term. In April, OPEC announced an expansion of production cuts to offset financial pressures, boosting oil prices in the short term. Expectations of overseas recession in May put pressure on oil prices to remain weak. In June, OPEC announced an extension of production cuts until the end of next year, and Saudi Arabia said it would make additional voluntary production cuts. Saudi Arabia's output and exports dropped sharply in July, boosting spot prices. An increase in Iranian exports in August led to a short-term decline in oil prices. In September, Saudi Arabia and Russia announced that they would extend production cuts until December, starting a new upward cycle, with prices approaching the 100-yuan mark. China crude oil futures. The domestic epidemic at the end of last year caused the performance of China's crude oil futures to be relatively weak. Although the expected economic recovery at the beginning of this year slightly boosted relative prices, the actual economic data was weak, resulting in low internal and external price differences in the first half of the year. In the second half of the year, the government introduced intensive measures to stabilize the economy, and economic data showed signs of stabilizing. At the same time, China’s crude oil demand hit a new high driven by rising residents’ transportation. China's crude oil imports are at record highs, and crude oil futures warehouse receipts have fallen to lows. Under the combined effect of high domestic demand and low warehouse receipts, the internal and external price differences and inter-month price differences of China's crude oil futures have risen sharply.

Key logic

The core logic of the rise in crude oil prices in the third quarter comes from the reality and improved expectations of destocking due to OPEC production cuts.

Historically, oil product inventories are highly inversely correlated with crude oil prices and can be used as a reference for oil price valuation. Generally, low inventory corresponds to high oil prices, and high inventory corresponds to low oil prices; oil prices are more likely to rise during destocking periods, while oil prices tend to fall during destocking periods. For example, when oil prices were at historical highs in 2011-14 and 2022, inventories were at historical lows; in the second quarter of 2020, the global epidemic caused oil prices to plummet and inventories rose to historical highs.

In the second half of 2022, the central banks of the United States and Europe adopted radical interest rate hike policies to curb inflation, which had a significant inhibitory effect on overseas economic growth; demand for oil products slowed, inventories gradually accumulated, and oil prices subsequently fell. In 2023, in order to offset the pressure of weak demand, OPEC will continue to expand production cuts. At the beginning of the year, there was still a slight accumulation of inventory, but in the second quarter, it gradually turned to destocking, and in the third quarter, the destocking rate accelerated significantly. Crude oil prices also moved higher.

The rise in crude oil prices in the third quarter of 2023 can be divided into two stages: ① July mainly comes from the repair of realistic valuations. OECD commercial inventories began to peak and fall in May, and oil prices remained biased under the pressure of financial sentiment.