Under the boost of various positive factors, the price of crude oil has been rising unilaterally since this year. The main contract of NYMEX crude oil futures has now stood above the $64/barrel level, with a cumulative increase of more than 40%. Analysts said that OPEC + production reduction, Venezuela’s unstable situation will continue to support oil prices, oil market is expected to continue to rise in the second quarter.
Futures prices are rising unilaterally
Since 2019, the international oil price has shown a volatile upward trend. The main contract of NYMEX crude oil futures rose from around $45 a barrel to above $64 a barrel, an increase of $19 a barrel or 42.22%.
Analysts said that the sustained rise in oil prices was mainly affected by three factors:
First, OPEC + production cuts are being promoted. In the agreement reached at the end of last year, OPEC assumed a share of 800,000 barrels per day, not 400,000 barrels per day. After three months of production reduction, although the implementation of output reduction in Russia and other countries is not ideal, OPEC’s output reduction is very ideal, the overall implementation rate of output reduction is more than 106%. Driven by production cuts, the market supply has been significantly reduced, which has supported the strength of oil prices.
Secondly, the situation in Venezuela is unstable. The United States has continued to tighten economic sanctions against Venezuela, while Venezuela’s domestic power problems have emerged in an endless stream. The interruption of electricity has plagued Venezuela’s domestic production and life, especially the transportation of crude oil ports, which has prevented the export of crude oil.
Third, the economic situation has steadily recovered. On the one hand, the international trade situation has steadily recovered. On the other hand, after the Federal Reserve suspended interest rate hikes, other central banks around the world followed the Federal Reserve’s footsteps and adopted a relaxed approach. Of course, in addition to the central bank policy, a series of measures such as the rapid arrival and landing of China’s tax reduction policy have made the global economic situation recover steadily.
Posterior market probabilities continue to rise
Despite the rebound and good continuity of oil prices, the current price of $64 per barrel is still far from the high of $77 per barrel in the third quarter of last year. Zhu Guangming believes that the overall international oil price in the second quarter will continue the warming trend in the first quarter, and US crude oil will stand at $70 per barrel, not excluding the short-term access to $75 per barrel. The specific reasons are as follows:
First of all, the driving force of production cuts is still there. In addition to Saudi Arabia’s active production cuts, Russia may accelerate the pace of production cuts in the second quarter. The convergence of market views on supply cuts was the most important driving force behind the rise in oil prices in the second quarter.
Secondly, the situation in Venezuela is still unstable, and it is difficult for the country’s crude oil production to recover significantly.
Thirdly, the U.S. plan to exempt Iran from the oil embargo is uncertain, and the scope of the exemption may be narrowed.
Finally, the extension of the agreement deserves the attention of the market. In the current relatively low oil price situation, Saudi Arabia’s target for oil price is $70 per barrel. Therefore, due to concerns about the rapid increase in U.S. crude oil production in the second half of the year, Saudi-led production reduction should be postponed smoothly, which strengthens market confidence.
Analysts also said worries about economic weakness would largely limit the rise in oil prices, but the short term may not be the main factor compared with rapid changes in the supply side. Therefore, the upward trend of oil prices in the second quarter should not change.