Monthly Archives: July 2019

Overview of Urea Supply, Demand and Import and Export in China

Production of urea

1. Urea Production Capacity and Yield in China

China’s urea industry has developed rapidly. After 2010, new and expanded urea production capacity was released centrally, and urea production capacity and output increased rapidly. Urea production increased to 74.92 million tons in 2015, and the supply of urea in the whole industry exceeded the demand. Affected by supply-side reform and downstream demand after 2016, urea production continued to decline and initial results were achieved. According to the statistics of the National Bureau of Statistics, China’s urea output in 2018 was 52.067 million tons, with an output value of 107.5 billion yuan (calculated according to the average price of urea in 2018 of 2065 yuan/ton), accounting for 26.30% of the global output, and it is the largest urea producer in the world.

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2. Distribution of urea production capacity

Urea production in China is mainly concentrated in North China, Northwest China, East China and Southwest China. The main producing provinces (autonomous regions) are Henan, Shandong, Shanxi, Xinjiang and Inner Mongolia.

The distribution of urea production and production capacity in China is basically the same. In 2018, the top ten provinces (autonomous regions) in China’s urea production are Shanxi, Shandong, Inner Mongolia, Henan, Xinjiang, Hebei, Sichuan, Jiangsu, Anhui and Shaanxi. The output of ten provinces (autonomous regions) totals 43.73 million tons, accounting for 84% of the total urea production in China.

3. Concentration of urea industry

There are 123 urea production enterprises in China. There are 23 enterprises with urea production capacity of more than one million tons. The total production capacity reaches 36.16 million tons, accounting for 46.36% of the total production capacity. With the deepening of the structural adjustment of the chemical fertilizer industry, urea industry has gradually shown the trend of large-scale and group.

Urea demand

1. Overall demand

China’s urea downstream demand is divided into agricultural demand and industrial demand. Among them, agricultural demand is direct application of crops, and direct application is mainly maize, rice and other field crops. Industrial demand is mainly used in the fields of compound fertilizer, urea-formaldehyde resin, melamine, cyanuric acid, gas denitrification and fine chemical industry.

China is the largest urea consumer in the world. In 2018, China’s total industrial and agricultural consumption was 5.08 million tons, of which 3.01 million tons were consumed in agriculture, accounting for 59% and 2.86 million tons in industry, accounting for 41%.


In recent years, China’s urea industry consumption has maintained rapid growth, and agricultural consumption has tended to stabilize. Overall, urea consumption remained stable growth until 2013. Since the 18th National Congress, the state has vigorously advocated the development of ecological agriculture, requiring the gradual control of fertilizer use. In 2015, the Ministry of Agriculture put forward the action of “zero increase of fertilizer application in 2020″ and drew up a series of action plans. The Ministry of Agriculture deepened the structural reform of agricultural supply side, adhered to the principle of promoting agriculture by quality and green, advocated the increase of fertilizer reduction and efficiency, and made the demand of urea agriculture decrease continuously, which would make the growth rate of fertilizer demand step by step. Slow down.

2. Regional Consumption

At present, the production and marketing pattern of urea in China has gradually got rid of the traditional characteristics of local production and consumption. Urea consumption is mainly concentrated in the main agricultural producing provinces in the middle and lower reaches of the Yellow River and the Yangtze River. The top ten provinces (autonomous regions) in domestic consumption are Shandong, Henan, Jiangsu, Hubei, Sichuan, Anhui, Hebei, Xinjiang, Inner Mongolia and Hunan. The total consumption of these provinces (autonomous regions) is 30.6429 million tons, accounting for 60.24% of China’s total urea consumption.

Import and export of urea

Before 1997, urea production in China could not fully meet the domestic demand, and a certain amount of urea was imported every year.

Since 1998, China’s urea production has been increasing. In order to protect the domestic fertilizer industry, the state has suspended urea imports, and urea imports have declined sharply since then. Since 2002, the State Economic and Trade Commission and the General Administration of Customs have implemented a quota system for the import of chemical fertilizers to strictly control the total amount of chemical fertilizer imports.

After 2003, China’s urea production capacity and output increased rapidly, urea export volume increased substantially, but the export volume was affected by the domestic export window period and the international urea market, which fluctuated greatly between years. The largest export volume was 13.748 million tons in 2015. After 2016, with the introduction of new international production capacity, urea supply in the international market has become more relaxed, competition has intensified, and domestic urea exports have gradually decreased due to cost disadvantages. In 2018, the total urea export volume was only 2.462 million tons, a decrease of 47.1% compared with the same period last year.


China’s urea export ports are mainly in the north, with more than 50% of the export volume. The exporting countries are mainly large agricultural countries represented by India.

Adipic acid settled at the end of the month at a high price and the market generally rose

According to the data of the business associations’list, the domestic adipic acid market rose by 3.26% on July 29. Most of the dealers’ quotations increased by 300 yuan per ton. Mainstream quotations in the market generally range from 8500 to 8700 yuan/ton. The quotations of distributors in North, East and South China have increased to some extent.

In mid-July, adipic acid market generally warmed up. Since the market went down in June, the market has repeatedly risen under the influence of external forces such as upstream costs and price adjustments of large factories. Especially on the end of July 29, the settlement price of factories was generally higher, which passively raised the market quotation of distributors. But at present, the downstream market view Hope mentality is still heavy, purchasing behavior is biased towards rationality, and there is room for merchants to make profits. Social inventory still shows some pressure, and the shipment dynamics do not change much compared with the previous period.

On the supply side, the market still shows certain supply pressure, and many distributors say that the inventory pressure is high, the level of equipment maintenance is not high, the median level of inventory performance of manufacturers, distributors are getting goods one after another, and the current market inventory is constantly degraded. Therefore, although adipic acid market quotation has increased, but also There are many relatively low-priced goods in the market, and the overall supply pressure is still in the market, which leads to the strong willingness of distributors to let profits go of inventory, the price difference between market price offer and actual transaction, and the market quotation is relatively chaotic.

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In terms of demand, downstream demand is moderate. Although nylon 66 belongs to the peak season of market consumption, there is no phenomenon of centralized purchasing in the downstream this year, so the downstream start-up rate has not generally increased. The start-up rate is basically 5-60%. The upstream adipic acid has not formed a strong boost, so this market. The rebound basically depends on the upstream pure benzol, driven by the cost effect, which belongs to the passive follow-up. The market is still going out of stock cycle.

The analysts of adipic acid in the chemical branch of business association think that the price of adipic acid has rebounded at present, and the higher market quotation is affected by the rising settlement price at the end of the month of the manufacturer. The fundamentals have not changed much. At present, the supply and demand are basically in a balanced pattern. Therefore, the Business Association believes that the market of adipic acid may stabilize in the short term to eliminate the current increase.

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China’s domestic rare earth market declined on July 29

On July 29, the rare earth index was 367 points, unchanged from yesterday, down 63.30% from the cyclical peak of 1000 points (2011-12-06), and up 35.42% from the lowest point of 271 on September 13, 2015. (Note: Period refers to 2011-12-01 to date).


The average price of Neodymium in rare earth metals is 382.5 million yuan per ton, dysprosium metal is 2.3 million yuan per ton and praseodymium metal is 700,000 yuan per ton. The average price of praseodymium and neodymium oxide in rare earth oxides is 289.5 million yuan per ton, dysprosium oxide is 1.84 million yuan per ton, praseodymium oxide is 3.90 million yuan per ton and neodymium oxide is 2.915 million yuan per ton. The price of praseodymium and neodymium alloys in rare earth alloys is 382,500 yuan per ton, and the average price of dysprosium and iron alloys is 184,000 yuan per ton.

Recent price declines in rare earth market, domestic rare earth market trading market is poor, some commodity prices in the rare earth market are stable, but in the near future, prices of some products in the rare earth market have fallen continuously, the price of dysprosium and terbium metals has fallen, the recent market trend of praseodymium and neodymium series products has been declining continuously, the supply in the market is normal, and the price of light rare earth has been in the near future. The trend is declining. The price fluctuation of rare earth market is related to environmental protection supervision in the whole country. Rare earth production has its particularity, especially the radiation hazard of some products, which makes environmental protection supervision stricter. Under stringent environmental protection inspection, rare earth separating enterprises in many provinces have stopped production, resulting in a general market input of rare earth oxides, especially some mainstream rare earth oxides, the supply is normal, the price trend of rare earth market has slightly declined, the recent market sentiment of large enterprise groups is reluctant to sell, the market trend of rare earth is poor, but for production. Pricing of products is also a cautious wait-and-see by major manufacturers.


Recently, the State Environmental Protection Department has made no reduction in its stringent efforts, which has a greater impact on the rare earth industry. The rare earth industry has a low start-up and a cold market. At the recent press conference on macroeconomic operation held by the Development and Reform Commission, Meng Wei, spokesman of the National Development and Reform Commission (NDRC), answering reporters’questions on rare earth, said that on the basis of in-depth investigation and scientific demonstration, relevant policies and measures would be put forward to give full play to the special value of rare earth as a strategic resource. Due to the increasingly obvious regulatory effect, the supply of raw ore resources in the upstream of the rare earth industry has shrunk, the demand in the downstream is poor, and the trading market of the rare earth industry has declined.

Rare earth analysts of business associations expect that the domestic environmental stringency will not diminish in the near future, coupled with the domestic rectification of the order of the rare earth industry, Myanmar’s export restrictions and normal supply, but the recent rare earth market transactions are limited, and the price of the rare earth market is expected to continue to fall.

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Maleic anhydride market fell this week (7.22-7.26)

Price Trend

Maleic anhydride market fell this week (7.22-7.26)

According to data from business associations, the average price of maleic anhydride offered by the end of the weekend was 7000.00 yuan/ton (including taxes), and the offer fell by 0.36%.

II. Market Analysis

Product: This week, the domestic maleic anhydride market as a whole showed a downward trend.

Industry chain: First, the domestic unsaturated resin start-up rate is low this week, and high temperature weather restricts the start-up of resin factories, resin downstream demand is weak pressure resin start-up, the overall procurement mood is not high; Second, the supply of maleic anhydride on the market is sufficient, in the off-season demand, manufacturers’shipment intention is obvious. The fluctuation of crude oil in the periphery affects the intra-field mentality. Crude oil rises better than the market; pure benzene price of upstream raw material falls slightly, butane price is still hovering at a low price, and the market supply is adequate. Environmental safety factors such as suppressing demand performance, chemical industry in Zibo area of Shandong Province requires a 30% production limit from August to September.

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3. Future Market Forecast

Analysts of Maleic Anhydride Products of Business Society Chemical Branch believe that at present, the gap between supply and demand of short-term maleic anhydride still exists, and the pressure of loss in benzene process is high. At present, the downstream resin start-up has not improved significantly, and the maleic anhydride market may have a downward trend in the short term.

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Ammonium sulfate Market Turbulence (7.22-7.26)

Price Trend

According to the monitoring data of business associations, ammonium sulphate market prices fell slightly this week, running in shock. At the beginning of the week, the average price of domestic ammonium sulfate was 678 yuan/ton, while at the end of the week, the average price of ammonium sulfate was 675 yuan/ton, down by 0.49%, with narrow fluctuation.


II. Market Analysis

Products: At present, the mainstream of ammonium sulfate in East China is offered 670-740 yuan/ton, the mainstream of ammonium sulfate in Northeast China is offered 650 yuan/ton, the mainstream of ammonium sulfate in North China is offered 600-740 yuan/ton, and the mainstream of ammonium sulfate in Central China is offered 650-780 yuan/ton.

Industry chain: The price of domestic sulphuric acid Market in the upstream has been slightly lowered. After the adjustment in June, the capital reflux of each plant is in good condition, the equipment has been repaired, and the production capacity has increased. The downstream compound fertilizer market has a steady trend and the start-up rate has risen. Environmental protection efforts have been strengthened in some areas, and compound fertilizer enterprises have been actively engaged in production to prevent production restrictions.

3. Future Market Forecast


Ammonium sulphate analysts believe that the current off-season ammonium sulphate market demand is limited, cautious downstream goods, prices are difficult to rise substantially. Coking grade market is weak and consolidated, environmental protection and production restriction are intensified, and downstream demand is sluggish. Lactam-grade mainstream exports, supply is tight. It is expected that ammonium sulfate Market will maintain stable and turbulent operation in the later period.

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China’s Natural Gas Production Achieved Double-digit Growth in the First Half of the Year

On July 25, the State Energy Administration held a press conference to introduce China’s energy situation. Li Fulong, Director of the Development Planning Department of the State Energy Administration, said that in the first half of the year, China’s economy was running smoothly on the whole, and positive progress was made in high-quality development. Energy supply and security capabilities were constantly improved, and people’s livelihood security of energy continued to improve.

Reversing the declining trend of crude oil production

According to statistics, in the first half of this year, China has made positive progress in increasing oil and gas reserves and production. China’s crude oil production reached 95.39 million tons, up 0.8% year-on-year, reversing the trend of decline in the past three years; natural gas production reached 86.41 billion cubic meters, up 10.3% year-on-year.

In terms of electricity, in the first half of the year, a total of 40.74 million kilowatts of new electricity were installed throughout the country. Among them, hydropower 1.82 million kilowatts, wind 9.09 million kilowatts, photovoltaic 11.4 million kilowatts, nuclear power 1.25 million kilowatts, non-fossil energy generation accounted for 58.4% of the increase.

The proportion of non-fossil energy power generation continues to increase. By the end of June, non-fossil energy accounted for 37.2% of the 6,000 kW and above power generation installed in China, which was 1.2 percentage points higher than the same period last year; non-fossil energy accounted for 27.3%, which was 2.1 percentage points higher than the same period last year.

Investment in energy supply board has increased substantially. In the first half of this year, investment in oil and gas exploitation increased by 34.1% year on year, 31.3 percentage points faster than the same period last year. Renewable energy investment in power generation increased by 36.3% year on year. The contribution of energy industry investment to social investment has increased. In the first half of the year, the cumulative investment in the energy industry increased by 1.9% year-on-year, accounting for 4.5% of the national fixed investment.

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Power consumption growth slowed down

Electricity consumption is an economic barometer. In the first half of this year, the electricity consumption of the whole society increased by 5.0% year on year, which is lower than the annual electricity consumption growth rate of 8.5% in 2018. In response, Li Fulong said that although the growth rate of electricity consumption has fallen from last year, it is still a relatively high growth rate in recent years. In recent years, China’s industrial structure has been continuously optimized, and the proportion of service industry has continued to increase. The change of economic structure is particularly evident in the aspect of electricity consumption.

In terms of electricity consumption structure, in the first half of this year, the proportion of electricity used by the third generation and residents was 31%, which was 1.2 percentage points higher than that of the same period last year; the proportion of electricity used by the second generation was 68%, which was 1.2 percentage points lower than that of the same period last year. From the contribution rate, the total pull-up power consumption of the third generation and residents increased by 2.8 percentage points, the contribution rate was 56.5%, 14 percentage points higher than the same period last year.

In the first half of this year, the power consumption of advanced manufacturing and high-tech industries has maintained a relatively rapid growth, such as special equipment manufacturing, electrical machinery and equipment manufacturing. The power consumption of information transmission/software and information technology services has increased by more than 13%, and the power consumption of emerging industries has increased by 4%. 9%, higher than 1.5 percentage points of the growth rate of electricity consumption in manufacturing industry.

According to Li Fulong, from the international experience, the process of industrial restructuring and the increase of the proportion of service industry is usually accompanied by the decline of the growth rate of electricity consumption. Therefore, at present and in the future, the shift of electricity consumption from the high-speed growth stage in previous years to the current medium-speed growth stage is an inevitable trend.

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The abandonment of water, wind and light continued to alleviate

In the first half of this year, the State Energy Administration further improved the competitive allocation mechanism of new energy power generation projects by establishing and improving the guarantee mechanism of renewable energy power absorption, and actively took measures to intensify efforts to absorb renewable energy, so that the situation of abandoned water, abandoned wind and abandoned light continued to ease.

In terms of installation, by the end of June, the installed capacity of renewable energy power generation in China reached 750 million kilowatts, an increase of 9.5% over the same period last year. Among them, 354 million kilowatts are installed for hydropower (29.99 million kilowatts for pumped storage), 193 million kilowatts for wind power, 186 million kilowatts for photovoltaic power and 19.95 million kilowatts for biomass power.

Regarding the level of renewable energy utilization, in the first half of this year, renewable energy power generation reached 887.9 billion kWh, an increase of 14% over the previous year. Among them, 513.8 billion kWh of hydropower increased by 11.8%, 214.5 billion kWh of wind power increased by 11.5%, 106.7 billion kWh of photovoltaic power increased by 30% and 52.9 billion kWh of biomass power increased by 21.3%. At the same time, the national abandonment rate was 4.7%, 4 percentage points lower than that of the previous year; the abandonment rate was 2.4%, 1.2 percentage points lower than that of the previous year.

In May this year, the State Energy Administration issued the Notice on the Construction of Wind and Photovoltaic Power Projects in 2019, which initiated the application of the State Subsidies for Photovoltaic Power Projects in 2019. “The implementation of photovoltaic power subsidy bidding is a major reform and innovation of photovoltaic power construction management policy.” Li Chuangjun, deputy director of the Department of New Energy and Renewable Energy of the State Energy Administration, said that the policy promoted the decline of subsidies for photovoltaic power generation projects. This year, the average intensity of subsidies for kilowatt-hour electricity included in the list of projects under the scope of subsidy bidding was about 0.0645 yuan per kilowatt-hour, which was more than 50% lower than the guided price.

TDI Market Price Trend Downward on July 25

Price Trend

According to the large data list of business associations, the price of TDI in East China market on July 25 was 13733.33 yuan/ton, a decline of 1.20%. At present, the price of domestic goods in East China market is 13700-14000 yuan/ton, and that of Shanghai is 14000-14500 yuan/ton.


II. Market Analysis

Products: Domestic TDI market range shocks, the overall offer is stable, a few low-price discs rarely heard, inquiry atmosphere maintained light, business follow-up is not smooth, supply and demand game stage.

Industry chain: Upstream toluene, compared with the previous trading day, Sinopec’s enterprises today’s toluene listing price unchanged. The listing price of Shandong Land Refining Enterprises remains unchanged today. Traders’quotations are fine-tuned today. The price in East China is about 5,470 yuan per ton. In nitric acid, the market demand is still acceptable and the market is stable for the time being.

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Industry: On-site traders pay close attention to the plant equipment news, the overall offer is stable, and few low-price discs are heard.

III. Price Forecast

TDI business analysts believe that the recent market consolidation operation, focus on factory information surface guidance.

Unveiling the Underlying Cause of Oil Price Pressure: Stagnation of Global Oil Consumption

John Kemp, a Reuters market analyst, wrote on Wednesday that global oil consumption has stagnated since mid-2018, causing oil prices to inevitably fall despite Saudi Arabia and its allies’best efforts to cut production.

The 18 largest oil consumers in the world consume more than 1 million barrels of oil per day, accounting for nearly two-thirds of global consumption, which can roughly effectively reflect global demand. Data from the Joint Organisation Data Initiative (JODI) show that oil consumption in these 18 countries increased by only 0.7% in the three months to March compared with the same period last year.

Oil consumption data for most of these countries are two months behind schedule, and data as of May have been released, but data for China, India and Thailand are released later.

Excluding the three countries whose data were released later, the largest 15 oil consumers accounted for 45% of global consumption, and their consumption fell by 2.2% in the three months to May, the largest decline since the 2008/09 recession.

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Since 2006, consumption growth in the 15 largest oil consumers has been a reliable leading indicator of the top 18, and demand has been wider. Given the interconnectedness of the global economy, this is not surprising.

Since the second and third quarters of 2018, the slowdown in oil consumption has been closely related to the slowdown in global manufacturing activities and freight volume. Given the slowdown in oil consumption, it is inevitable that oil prices will fall sharply despite the action taken by Saudi Arabia and its OPEC + allies to limit production.

Previously, when oil consumption slowed down in 2006/07, 2008/09, 2011/12 and 2014/15, it was accompanied by a sharp fall in oil prices, which eventually brought consumption and production back to balance. Production restrictions in 2019 prevented a sharper decline in oil prices, but inevitably lower oil prices must help to recover lost consumption growth.

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Kemp points out that only when the global economy avoids recession and oil consumption growth starts to accelerate again will oil prices continue to rise.

TDI Market Price Trend Slightly Decreased on July 24

Price Trend

According to the data list of business associations, the price of TDI in East China market on July 24 was 13900 yuan/ton, a decline of 0.71%. At present, the price of domestic goods in East China market is 13700-14000 yuan/ton, and the supply of goods in Shanghai is 14500 yuan/ton.


II. Market Analysis

Products: Domestic TDI market is weak and shocky, the overall atmosphere is depressed, and there is a lack of follow-up, so the mindset of the traders is weakening along with the market, and some have low intention.

Industry chain: Upstream toluene, Shandong Geotechnical Refining Enterprises today listed price down about 50 yuan/ton. Traders today quoted a steady price, East China quoted about 5450 yuan / ton; nitric acid, market demand is still acceptable, the market is temporarily stable.


Industry: The market pays more attention to factory news, and some low prices are also heard.

III. Price Forecast

TDI business analysts believe that the recent market stabilization has weakened, focusing on factory information guidance.

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Global crude oil market is still in crisis

The Rise of Shale Oil Supply and the Superposition of Demand Growth

A Review of the First Half of 2019

In the first half of 2019, SC crude oil futures rose from 380.8 yuan/barrel to 443.5 yuan/barrel, up 16.5%; Brent crude oil futures rose from 54.15 dollars/barrel to 64.55 dollars/barrel, up 19.2%; WTI crude oil futures rose from 45.8 dollars/barrel to 58.2 dollars/barrel, up 27.1%.

Overall, in the first half of 2019, oil prices showed a pattern of rising first and then depressing. Since the beginning of the year, Saudi Arabia has taken the initiative to cut its output excessively, Venezuela’s civil strife has intensified and its output has continued to be cut involuntarily. In addition, the exemption granted by the United States to Iran’s crude oil sanctions is about to expire. The relationship between the United States and Iran has continued to be tense, and the supply side has given strong support to oil prices. At the same time, global economic growth concerns remain, but Sino-US trade is Friction is now easing signs, so that the market’s pessimistic expectations were restored, but also created a favorable environment for oil prices to rise, oil prices once showed strong performance.

In May, the geo-conflict did not deteriorate further. On the contrary, the rising oil price raised the market’s concern about the loosening of OPEC cut-off agreement. In addition, the situation of low start-up of refineries and accumulation of crude oil stocks also appeared in the United States. At the same time, international trade relations were tense, and the increasingly pessimistic economic prospects made the market worried about crude oil demand. Gradually warming up, oil price pressure declined.

Then into June, macro-environment margin improved, geo-conflict events continued, EIA crude oil inventory increased to decrease, oil prices were repaired to a certain extent, and entered the period of oscillation adjustment.

Looking back, in the first half of 2019, the net long positions of WTI and Brent crude oil futures showed a pattern of rising first and then depressing, basically in line with the trend of oil prices. Compared with previous years, the net long positions at the beginning of the year were at the bottom of the five-year interval, close to the extremely pessimistic region, but then all the way back to the five-year interval, and with oil prices in May. The bullish sentiment retreated to the bottom of the five-year interval, and the early bullish squeeze effect further put pressure on oil prices, which also dragged down oil prices.

One of the main lines of B: OPEC + production reduction

The marginal effect of OPEC on production reduction is weakened

On December 7, 2018, OPEC and non-OPEC major oil producers reached an agreement to reduce production by 1.2 million barrels per day from January to June 2019, of which OPEC reduced production by 800,000 barrels per day and non-OPEC reduced production by 400,000 barrels per day. Since February 2019, the implementation rate of OPEC output reduction has exceeded 100%. As of May, the implementation rate of output reduction reached 151%. The implementation of output reduction is good, but it should be noted that in May, Iraq, the United Arab Emirates and Kuwait and other countries have increased production to varying degrees, and there are differences within OPEC.

After weeks of discussion, OPEC + decided to extend the cut for nine months at the just-concluded July meeting and maintain the cut quota set in December last year, with Iran, Libya and Venezuela exempting. Of course, the meeting was different. OPEC changed its previous wording of reducing global crude oil inventories to the five-year average, and said it was seeking to reduce inventories to the 2010-2014 level. Current OECD inventories have fallen below the five-year average, and to meet the new requirements, it will continue to decline by about 240 million barrels, which is also true. OPEC is required to increase its production reduction target in disguised form, but it is difficult to achieve this goal with doubtful binding force on the premise of maintaining the production reduction quota.

Generally speaking, the new agreement can be said to be a lack of novelty. Maintaining the original output reduction quota actually gives those countries with excessive output reduction space to increase production, while maintaining the output reduction itself actually causes the market to worry that OPEC has to reduce production because of poor demand prospects. Under such circumstances, the stimulating effect of production reduction on the oil market is expected to be significantly weaker than in the first half of the year.

Can Saudi Arabia’s Over-cut Continue

Since January 2019, Saudi Arabia has taken the lead in carrying out the task of reducing production beyond expectation. In May, Saudi output has dropped to 9.69 million barrels per day, and the implementation rate of the target of reducing production has further increased to 293%. At present, Saudi Arabia has actually reduced its output by 940,000 barrels per day, with a reduction limit of 320,000 barrels per day and an excess reduction of 620,000 barrels per day. That is to say, Saudi Arabia can increase its output within the reduction limit in the second half of the year, with a maximum increase of 620,000 barrels per day, which can fully compensate for the reduction in crude oil supply caused by sanctions on Iran.

Russia’s lack of momentum to reduce production

Although Russia is the representative of non-OPEC oil producers who actively support the production limitation agreement, in fact, since the beginning of 2019, Russia’s enthusiasm for production reduction has been low. In May alone, it basically achieved the OPEC+production reduction target for the first time, which is due to the pollution of transportation pipelines leading to oil refineries in Eastern and Central Europe. In the second half of the year, with the gradual solution of the oil pipeline pollution problem, this part of the reduction or disappearance, Russia’s demand for market share and the purpose of strategic deployment of the crude oil market will always be the resistance of its strict implementation of production reduction.

C Main Line Two: U.S. -led Oil Market

US crude oil production maintained growth

In the first half of this year, U.S. crude oil production maintained a steady growth momentum, but the growth slowed down. As of the week ending June 28, U.S. crude oil production was 12.2 million barrels per day, an increase of 500,000 barrels per day over the beginning of the year. The monthly report released by EIA on June 11 shows that U.S. crude oil production will increase by 1.36 million barrels per day to 12.32 million barrels per day in 2019, down 140,000 barrels per day from previous estimates, but EIA expects that U.S. crude oil production will increase by 94,000 barrels per day in 2020, up 1,000 barrels per day from previous estimates.

As of the week ending June 28, 793 active drilling rigs in the United States were at a relatively high level in history, while 55.6% in Permian region were at a high level.

Since 2018, DUC (drilled but uncompleted wells) in the United States has shown a large upward trend as a whole, only a slight decline since March 2019. By May 2019, there were more than 8,200 DUCs in the United States. However, in Permian area, DUC has soared to more than 3,900. With the large-scale pipeline production in the second half of 2019, these DUCs, especially It is hoped that DUC in Permian will be switched to completion soon, which means that the further increase of U.S. crude oil production is not far away.

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Starting in June 2018, pipeline transportation in Permian region appeared obvious bottlenecks, and the MEH-Midland price gap once soared, which also stagnated the increase of U.S. crude oil output. Starting in September, the expected production of Sunrise pipeline brought the price gap back to normal, and U.S. crude oil production resumed its growth trend.

In the second half of 2019, the Permian region will usher in a peak of production, with a total increase of 2.64 million barrels per day in pipeline capacity to ports in the United States Bay region, which is expected to exceed the growth of crude oil production in the Permian region in the same period, greatly alleviate the bottleneck of transportation and increase the supply pressure of crude oil from the United States.

In line with the increase in pipeline capacity in major production areas, it is the increase in the export capacity of the United States. At present, the export capacity of American ports is about 4 million barrels per day. According to Bloomberg data, the export capacity of Corpus Christi ports is expected to double to 2.4 million barrels per day this year and increase to 3.2 million barrels per day in 2021. Under the combined effect of pipeline transport bottleneck alleviation and export capacity enhancement, the bottleneck of crude oil export in Permian region has been lifted. This means that the U.S. crude oil export routes to other countries are widened.

Canadian production may recovery

At the end of 2018, transportation bottlenecks led to a discount of nearly $50 for WCS relative to WTI crude oil futures in Canada, triggering subsequent active production cuts in Alberta. In the second half of the year, the government said it would not make a decision on the expansion of Tranmountain before the October 2019 Prime Minister’s election. The expansion plan was put on hold. However, it is gratifying that Enbridge said it planned to increase pipeline capacity by 135,000 barrels per day by the end of the year, partially alleviating the pressure of Canadian capacity and Canada’s crude oil production. Quantity or recovery.

D Main Line 3: Geopolitics

The escalating conflict between the United States and Iraq

In late April 2019, the U.S. government announced that it would no longer exempt eight countries and regions from importing Iranian crude oil. Since then, tensions in the Middle East have intensified. In June, the U.S. Treasury announced sanctions against Iran’s largest petrochemical company, the Persian Gulf Petrochemical Industry Corporation (PGPIC) and its 39 subsidiaries. Iran counteracted mainly by terminating the implementation of some provisions of the Iranian nuclear agreement. Iranian President Ruhani announced that Iran would not sell heavy water and enriched uranium to the outside world, and that Iran would again sell heavy water and enriched uranium. The second resumption of uranium enrichment activities, starting on July 7, raised uranium enrichment to the “required level”, breaking the 3.67% limit of the Iranian nuclear agreement.

As of June 2019, Iranian crude oil production was 2.28 million barrels a day, down 100,000 barrels a day from last month; Iranian crude oil exports fell to 296,000 barrels a day, although not to zero, but India stopped importing Iranian crude oil in May. At present, only China is still importing Iranian crude oil, and the situation of Iranian crude oil exports is not optimistic.

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Iran’s concerns are not limited to its own production. Another core issue is the safety of global crude oil transport. About 35% of the world’s offshore crude oil transportation and 90% of the Persian Gulf’s crude oil output flow through the Strait of Hormuz, through which at least 17 million barrels of crude oil go to China, India, Japan and other places every day. Since June, two oil tankers have been attacked in the Gulf of Oman, followed by the shooting down of U.S. drones over the Strait of Hormuz by Iran. Recently, the British Navy has seized the supertanker Grace I carrying Iranian crude oil, adding up the threat of closing the Strait of Hormuz when Iran was subjected to U.S. sanctions earlier. Recently, the “war insurance premium” has risen rapidly, increasing the cost of crude oil transportation and threatening the safety of global crude oil transportation, which has become one of the main unstable factors facing oil prices in the second half of the year.

Venezuela’s supply decline is hard to reverse in the short term

Venezuela, with crude oil as its core economic pillar, is currently in the midst of a long economic and social crisis. On the one hand, its government is in high debt and its economy is on the verge of collapse; on the other hand, the political situation is turbulent. In January 2019, Guaido, a member of the opposition, named himself “interim president” and won the United States, Canada and several European and Latin American countries. Public support. Affected by this, Venezuela’s large-scale power outages occur frequently, oil tankers and crew are facing shortages. At the same time, many sanctions against Maduro government officials and Venezuela have been implemented, which has caused a significant blow to the production and export of Venezuelan crude oil.

OPEC data show that Venezuela’s output in May has dropped to 741,000 barrels per day, a record low. Since this year, its crude oil exports have also declined significantly. It is noteworthy that the volume of exports to the United States has dropped to zero since February.

Looking ahead, for Venezuela, the uncertainty in the future mainly comes from the change of regime and the lifting of sanctions imposed by the United States, but at present, the recovery of its crude oil production and export still has a long way to go.

E-risk hints and trading strategies

US: Fed Interest Rate Reduction Expectations Warm

Under the influence of trade barriers dominated by U.S. trade policy, U.S. economic data is weak, manufacturing PMI has dropped sharply, output growth has stagnated, consumer demand is insufficient, inflation continues to be weak, unemployment rate has hit the bottom, and core U.S. bond yields are upside down. All these signs suggest that U.S. economic growth will accelerate, significantly. It raised the market’s anxiety about the outlook for the U.S. economy.

On March 22, 2019, the 10-month-3-month Treasury bond yield curve of the United States first appeared inversion in nearly 10 years; on May 23, it fell into inversion again. At its June meeting, the Federal Reserve maintained its existing interest rate unchanged, but lowered its key core inflation expectations. At the same time, it abandoned its previous “patience” wording on future policy adjustments, saying that uncertainty about the future economic outlook had increased and that it was gradually showing an open attitude towards interest rate cuts. The market expected a rate of about 25B in July. P. Combined with our previous analysis of US Treasury spreads, Federal Reserve interest rate policy and US economic cycle, the deterministic increase of global economic slowdown and the weakening of short-term US dollar have boosted oil prices. However, in the medium and long term, the economic and environmental pressures on oil prices remain high, and they are also a major repression on the demand side of crude oil.

Eurozone: Sustained economic downturn

While the manufacturing sector in the euro area remains depressed, the economic boom index is weak, inflation data is at a low level, consumer confidence index is declining, and macroeconomic data in Europe continues to deteriorate, the ECB intends to accelerate the pace of quantitative easing, and the European economy may continue to deteriorate or even fall into partial recession in the future.

Against the background of accelerated global economic slowdown and tense trade situation, the expected rate cuts or implied interest rate cuts by major global central banks further exacerbate market panic, and the global economic resonance slowdown may be unavoidable.

Crude oil demand without immediate concern and foresight

On the demand side, since 2019, owing to the macro-environment turbulence, OPEC, EIA and IEA have continuously lowered their expectations of crude oil demand growth in 2019. Among them, OPEC has lowered the global crude oil demand by 360,000 barrels per day, EIA has lowered the global crude oil demand by 320,000 barrels per day and IEA has lowered by 200,000 barrels per day.

The depot period of crude oil is April-September every year, but in 2019, because the crude oil production of the United States continues to increase substantially and the start-up rate of refineries is lower than that of the same period last year, the depot of crude oil in the United States is delayed. However, in July, with the gradual recovery of the start-up rate of refineries and the seasonal improvement of downstream demand, the depot period of American crude oil stocks is gradually opened. 。 Overall, the peak consumption season in the third quarter formed a short-term support for crude oil demand.

Strategic thinking

Demand warmed seasonally in the third quarter, and global crude oil entered the depot cycle, while the U.S. hurricane season also affected crude oil production. In addition, the Federal Reserve’s short-term interest rate cuts boost the role of short-term deposits, oil prices remain strong in the short term. However, with the lifting of transport bottlenecks, shale oil production and exports in the United States will experience explosive growth. Its negative impact is expected to overwhelm the marginal boost and gradually weaken OPEC+production reduction. In addition, the slowdown of global demand, the intensification of financial market volatility and the drag of risk preference, the pressure of oil price rebound will be greater.

In summary, it is expected that oil prices will rise first and then decrease in the second half of the year. Overall, they will operate in the core areas of WTI crude oil futures of $47-62 per barrel, Brent crude oil futures of $55-70 per barrel and SC crude oil futures of $380-480 per barrel.