Mei Erya futures crude oil analyst Li Lei: take you to the pulse crude oil futures fluctuation law-Shanghai Metals Market

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Mei Erya futures crude oil analyst Li Lei: take you to the pulse crude oil futures fluctuation law

Translation 09:29:51AM May 28, 2019 Source:The Great study of the United States
The content below was translated by Tencent automatically for reference.

SMM News: 1 Oil Price trend and Analysis Framework

1.1 rebalancing process after a sharp fall in oil prices in 19

Let's first take a look at the trend of oil prices in 19 years. On the whole, the trend of oil prices this year is in the process of rebalancing after a sharp fall in the fourth quarter of 18 years. On National Day last year, oil prices began to fall, and WTI fell from US $76 to US $42. At one point, the decline reached 45%; In 19 years, driven by OPEC+ Russia's 1.2 million b / d production cuts in six months, oil prices showed a bull market in January-April, with WTI rising 56 per cent from $42 to $66. As soon as we fell and rose, there was an interesting phenomenon, that is, as soon as we passed the holiday, the international oil price could not be tightened. Last year, it was National Day that began to decline. This year, it was International Labour Day who made a pullback. When I broadcast live on May 7, Some investors asked why this year is a correction, last year is down, what is the difference between the two paragraphs of the market, I believe after listening to the roadshow, you will have the answer.

1.2 the seasonal characteristics of international oil prices are obvious

From the oil price trend above, we can see that the oil price fluctuates a lot, rising 56% after falling 45%. Is there any rule behind the big fluctuation? Now let's show you the first rule-the seasonal characteristics of oil prices. From the 10-year seasonal chart of figure (1), we can see that oil prices tend to rise in the first quarter, and are in a volatile stage in the second and third quarters, and form the high point of the year. The decline began in the fourth quarter and bottomed out in January next year. The red line in the picture is the trend of oil prices over the past 19 years, which can be seen in line with the seasonal pattern. Figure (2) is the income chart of oil prices, you can find the same law, February, March, April long oil price returns are better, November to January is suitable for shorting oil prices. These two charts can give us a sense of experience-based rhythm. For crude oil traders, they need to pay close attention to the emergence of the top after the rise in the second quarter, and now the time seems to be at this stage, so the need to pay special attention. If you are a production enterprise, you should seize the opportunity of low prices at the end of the fourth quarter and the beginning of the first quarter.

Figure (1)

Figure (2)

From the fundamentals to understand the seasonal law of oil prices, in the first quarter, prices fell to the bottom of the region, in the expectation of better demand, oil prices began to low consolidation, after the end of consolidation, prices rose due to demand growth and inventory decline. The spring of price is coming. In the second quarter, demand continued to improve, inventories continued to decline, as prices accumulated a certain increase, the market is full of vitality, prices into the summer. In the third quarter, refineries began to overhaul, demand entered the end, inventories began to grow, oil prices began to show fatigue, prices came in the autumn. In the fourth quarter, prices tend to start to fall due to concerns about demand and inventories, and winter is coming.

1.3 crude oil price analysis framework

After talking about the oil price market and seasonal characteristics, here are the key points that affect the trend of oil prices. This chart is the framework for my analysis of crude oil. Crude oil has three attributes: commodity, financial and political. We can analyze many factors that affect crude oil in these three attributes. For example, US sanctions against Iran are a political attribute, and at the same time, they transmit influence to commodity attributes through exports. Personally, I think that the analysis of geopolitical events must be based on supply and demand data in order to judge the influence. In addition, the supply and demand data of crude oil are divided into long-term, medium-term and short-term factors according to the time dimension. When designing a strategy, we should consider the time dimension, under different time dimensions. The logic we analyze is different from the indicators we track. in a long-term strategy, we have to ignore short-period variables. On the contrary, we can not use a long causal logic line to do a very short transaction.

After talking about the framework, let's talk about the process of analyzing crude oil. Crude oil research and doing experiments are the same. It is a cold process that needs to be traced from a large amount of data. Crude oil research is such a process, first of all, to establish a huge analytical framework, from the framework to find the law, once found a good law will feel excited, because it can bring endless value to the whole research; Then look for data to verify the prediction based on the law, and finally draw a falsifiable conclusion. Falsification says that prediction must be falsifiable in principle, not that it is wrong at this stage, but that there must be a way to prove it wrong. If you can't falsify based on the current data, accept this conclusion for the time being; if you find that some data prove it wrong, try to establish a new logic to replace the original hypothesis and accept the new conclusion. As we can see, in fact, the study of crude oil is not very deep, which is a process of looking for rules based on experience.

In addition, we should pay attention to both the absolute value and the trend when we do the crude oil analysis. To analyze the absolute value is to compare it with the historical high and low point, so that we can know the scope and position of the variable. The trend of analysis is to find the relationship between the direction of variables and the direction of changes in oil prices. For example, the crude oil process was serious in the fourth quarter of 18, and it was still in surplus in the first quarter of 19, but the surplus has been reduced, and the oil price has not fallen because of the surplus. It's going up in the process of shrinking the surplus, so I think the trend ratio is more important.

2 demand side analysis

Crude oil is a commodity with rigid demand, which affects the long-term oil price and provides us with the general direction of the year. The demand for crude oil is closely related to the macro-economy. Director Fan has just conducted an in-depth analysis of the macro-economic trend. I would like to talk a little bit about the relationship between the demand for crude oil and the macro-economy.

2.1 increased downside risks to the global economy, driving demand for crude oil weaker

The change in crude oil demand is synchronized with global economic growth: let's take a look at the relationship between GDP and crude oil demand. The compound growth rate of global crude oil consumption is 2.09%, which is basically in line with the global GDP growth. The change of crude oil demand is synchronized with the global economic growth, and the correlation coefficient is 0.82, which can be used to analyze the long-term change of crude oil demand based on global economic growth. This year, China's economy has bottomed out again, the growth rate of the US economy may slow down, the European economy has begun to decline, the impact of the trade situation has been superimposed, the downside risks to the global economy have increased, and the IMF has lowered its economic growth forecast, leading to weaker demand for crude oil.

2.2 the demand increment is reduced by the organization, and the pressure on the demand side is greater.

Having said that, we will take a look at the demand for crude oil. First, we will take a look at the expectations of EIA and OPEC for the increase in demand for crude oil in 19 years. The intuitive feeling is that due to the impact of the trade situation, the three major institutions have reduced the increase in demand for 19 years in a row. EIA cut demand growth for 19 years for five consecutive months, forecasting an increase of 1.38 million barrels per day for 19 years, slightly less than the increase of 1.54 million barrels per day in 18 years. OPEC began to measure 19 years of demand in July 18, and has since been downgraded continuously. The latest monthly report forecasts that crude oil demand will increase by 1.21 million barrels per day in 19 years, down from 1.5 million barrels per day in 18 years. Through the forecasts of the above institutions, we can see that the increase in demand in 19 years is 120-1.4 million barrels per day, that is to say, the downward pressure on the economy is relatively high, and demand expectations are not optimistic. EIA expects U.S. crude oil production to increase by 1.55 million barrels a day in 19 years, so OPEC has to cut production.

3 crude oil supply-side analysis

Crude oil is a special commodity with oligarch supply and rigid demand. Demand dominates long-cycle oil prices and supply dominates the trend of medium-and short-cycle oil prices, so there are more comments on the supply side when we communicate. When analyzing the supply side, we should pay attention to the total and marginal changes. In terms of total quantity, the United States, Saudi Arabia and Russia are tens of millions of barrels of oil producers, which is why crude oil is a commodity for oligarchs; From an incremental point of view, the United States is the country with the largest increase in supply in 17 years, and Saudi Arabia is the country with the most production reduction, so on the supply side, we should pay attention to the situation of the United States and Saudi Arabia. Since Saudi Arabia is the leading eldest brother of the OPEC, they act together. So we include Saudi Arabia in OPEC, in addition to OPEC and the United States, the rest is Russia-led non-American and non-OPEC countries. In other words, we divide the supply side into three parts: OPEC, the United States, and non-American and non-OPEC.

3.1 past and present lives of Iranian sanctions

The most popular topic on the supply side recently is US sanctions against Iran, which is the main factor affecting current oil prices. Let's first review the history of Iranian sanctions, dating back to 2010 and June 2010. the United Nations Security Council imposed sanctions on Iran. Freeze the assets of 40 entities in Iran. In December 2011, the United States announced the Defense Authorization Act for Fiscal year 2012, which stipulates that if a country's financial institutions continue to buy oil from Iran through the Iranian Central Bank, The United States has cut off all financial institutions in the country from the US banking system; In January 2013, the Defense Authorization Act for Fiscal year 2013 tightened sanctions against Iran in the areas of energy, shipping and shipbuilding, and specifically restricted barter to prevent Iran from circumventing sanctions. Iran's crude oil production fell from 380 to 2.7 million barrels, down 1.1 million barrels a day. By January 2016, the Iran nuclear agreement officially began to implement, the United States and the European Union lifted sanctions against Iran, crude oil production from 2.8 million barrels per day to 3.8 million barrels per day. On May 8, 2018, the United States withdrew from the Iranian nuclear agreement, reinstated sanctions against Iran and restricted Iranian oil exports. In November, the United States officially imposed sanctions on Iran, but at the same time exempted eight countries and regions from continuing to import Iranian crude oil, superimposed OPEC to increase production, and oil prices plummeted.

3.2 US sanctions against Iran fall sharply

Iran's crude oil exports have fallen sharply, sparking a short-term supply threat. In November last year, the United States granted Iran oil import immunity for 180 days to eight countries and regions, including China, and Iran's crude oil exports reached a level of 1.4 million barrels per day in March. The United States ended the exemption of Iran's crude oil import ban in order to reduce Iran's crude oil exports to zero, and oil prices continued to rise in April. But when it came into effect on May 2, Trump asked Saudi Arabia and other countries to increase production, and international oil prices began to fall.

In April, Iranian crude oil exports fell 530000 barrels a day to 870000 barrels a day, Chinese imports fell to 270000 barrels, Indian imports fell to 330000 barrels, Turkey fell to 100000 barrels, and South Korea, Japan, Taiwan, Italy and Greece all stopped importing. PetroChina and Sinopec stopped importing crude oil from Iran in May. Lured by huge benefits, Iranians use motorcycles to ship 130000 barrels of crude oil a day to Pakistan. Preliminary tracking data show that Iranian crude oil exports fell to 470000 barrels a day in May, and the destination is unclear.

With exports tightened, crude oil production fell by 164000 barrels per day to 2.554 million barrels per day, below the lowest level of the previous round of sanctions (2012-2015) (2.66 million barrels per day). Production in May is likely to fall to levels seen since the Iraq war in the 1980s.

It is a question of which countries can replace Iran's crude oil exports, which can be replaced by medium and heavy crude from Saudi Arabia, Iraq, Russia and the United Arab Emirates. As for condensate, Qatar and Australia are ready to intervene.

3.3 OPEC's current policy is to reduce production and raise prices

After talking about the impact of US-Iraq sanctions, we will talk about the question of whether OPEC can increase production and fill gaps in the end. Before we talk about this issue, let's first review the OPEC policy. The OPEC policy has experienced flexible adjustment from 2000 to 2014, increasing production and insurance from 2014 to 2015, reducing production and raising prices from 2017 to March 2018, and increasing production and filling gaps after 3 months. In the fourth quarter of last year, OPEC defended oil prices with production cuts as oil prices fell all the way to around $60, below the Middle Eastern fiscal balance of $80 and inventories hit the five-year average. The production reduction alliance reached a new production reduction agreement on December 7, which reduced production by 1.2 million barrels per day on the basis of crude oil production in October, including 800000 barrels per day for OPEC, 400000 barrels per day for non-OPEC, and 230000 barrels per day for Russia. It was implemented in January 2019 and lasted until the end of June 19.

Why would OPEC cut production because of budget oil prices, which IMF estimates will be $85, $64, $64, $126 and $49 per barrel for Saudi Arabia, Iraq, the United Arab Emirates, Iran and Kuwait, respectively, to achieve budget balance in 19 years. OPEC crude oil production accounts for 42% of the world's total crude oil production, which is related to the average Brent price of 0.75. OPEC controls oil prices through production.

3.4 OPEC production decline slows, Saudi Arabia is unable to reduce production

After talking about the change of OPEC production reduction policy, let's take a look at the specific situation of OPEC production reduction. Crude oil production in OPEC 14 countries fell by 3000 b / d to 30.03 million b / d in April, down from 520000 b / d in March, and production has stabilized. Production increases in Iraq and Nigeria offset production cuts in Saudi Arabia and Angola, while production in OPEC 11 production countries increased slightly by 30, 000 barrels per day, and the implementation rate of production reduction fell from 151 per cent to 146 per cent, showing signs of loosening.

Let's simply calculate how much OPEC can increase in different cases. The target output of OPEC 11 reducing countries is 26.7 million b / d, and if the implementation rate of 100% production reduction is maintained in the later stage, the yield can be increased by 370000 b / d, and can be increased by 1.17 million b / d when it returns to the production level in October last year. Iran exported 870000 barrels of crude oil a day in April, and the OPEC has the ability to make up for Iran's supply gap. From the relationship between OPEC production and oil prices, we can see that when OPEC increases production, OPEC oil prices will decline to varying degrees.

Just mentioned that Saudi Arabia is the spiritual leader of OPEC: in April, Saudi crude oil production fell by 45000 barrels per day to 9.742 million barrels per day, already below the minimum production of 9.8 million barrels per day in the previous round of production cuts (January 17). Saudi Arabia's target production reduction in this round is 10.2 million barrels per day, which has exceeded the production reduction task, and the space for decline is limited in the later period. Saudi energy ministers said at a meeting on May 19 that production would remain near 9.8 million barrels per day in May and June. I expect a seasonal increase in Saudi production in May to meet demand from power plants. Preliminary data show that Saudi crude oil exports in May increased by 160000 barrels to 7.1 million barrels per day, compared with 6.94 million barrels per day in April. South Korea originally imported a large amount of Iranian condensate oil, but now imports Saudi oil.

3.5 pollution of crude oil pipelines in Russia, with an expanded decline in production in May

Russian pipelines have been contaminated and forced to cut production. In April, Russia stepped up its efforts to reduce production, with crude oil production falling by 70,000 barrels per day to 11.23 million barrels per day, and the implementation rate of production reduction increased to 80 per cent. Recently, Russia to Western Europe, a friendship transport pipeline with a transport volume of 1 million barrels per day. Contaminated by organic chloride, supply was suspended because the chloride content exceeded the requirements of European refineries, crude oil exports were affected, and Rosneft asked oil producers to reduce production as of 12 May. Russian production has fallen to 11.16 million b / d, below the target of 11.18 million b / d, and the Russian energy minister expects the implementation rate of Russia's oil production reduction to be slightly more than 100 per cent in May. At present, about 170000 barrels of crude oil per day is transported to Western Europe through the South Friendship Pipeline.

3.6 the decline of drilling rigs affects production, and the output of the United States tends to stabilize in the short term.

The decline of crude oil drilling rigs limits production growth: from the logic of oil price, drilling rig and output, the number of crude oil drilling rigs in the United States began to decline in January and is still in the impact of a sharp drop in the fourth quarter of 18. the number of drilling rigs leads crude oil production by 20 weeks. The decline in the number of drilling rigs limits the growth of crude oil production. EIA expects US crude oil production to be at 12.45 million barrels per day from May to July, and will increase by 200000 barrels to 12.65 million barrels per day as the pipeline goes into operation in August, reaching 13.16 million barrels per day by the end of 19 years.

4 Summary of supply and demand of crude oil

The above mainly combs the main variables of supply and demand fundamentals. We can see that Russia's production reduction expanded in May and US production stabilized. If OPEC maintains its attitude of reducing production at this time, the global crude oil supply is tightening. Oil prices are supported by supply as they fall. But from supply or demand alone, we can't directly conclude that when trading oil prices, oh, we need to know the results of supply and demand in the crude oil market, and as I mentioned earlier, we need to know the changing trend. This is what I'm going to talk about later, using trend indicators to trade oil prices.

4.1 demand for OPEC increased in the second quarter, making room for increased production

Demand for OPEC increased in the second quarter, making room for increased production. Each month, the three major institutions publish crude oil market reports, which will make a summary of the quarterly crude oil supply and demand balance. According to the crude oil supply and demand balance predicted by the OPEC, the average output of OPEC crude oil in the first quarter of 19 was 30.5 million barrels. It is almost equivalent to demand for OPEC, with a slight surplus of 20, 000 barrels a day throughout the first quarter. By the second quarter, demand for OPEC crude oil will increase by 500000 barrels to 30.95 million barrels per day. In April, OPEC crude oil production was 30.03 million barrels per day. OPEC can increase production by 920000 barrels per day in the second quarter while maintaining a tight balance. When there is room to increase production, the determination of OPEC to reduce production in the later period depends on the oil price. If the oil price falls sharply recently, it can just set the determination for the OPEC to reduce production, and on the contrary, it will support the oil price in the future.

4.2.1 reduction in production leads to decline in OECD commercial oil stocks

OECD commercial inventory decline, the effect of production reduction. On 19 May, at the meeting of the Ministerial Supervisory Committee, the Minister of Energy of Saudi Arabia stressed the need to promote the development of the market in a balanced direction and return stocks to normal levels, which is referred to here as OECD commercial oil stocks. The normal level is the five-year average. Why is OPEC so concerned about this figure, because the correlation between OECD commercial oil stocks and the average Brent price is 0.85, compared with $85 a barrel for Saudi Arabia to achieve budget balance in 19 years, and Saudi Arabia wants to raise oil prices by reducing inventories. In March, OECD commercial oil stocks fell to 2.849 billion barrels, below the five-year average of 2.2 million barrels, and OPEC production cuts improved global crude oil supply and demand, causing global oil stocks to fall for two consecutive months. In April, the decline in OPEC production slowed, inventories in the United States and Japan increased, inventories in Europe fell, and inventories were more likely to recover in April. This indicator is good or good, but the time lag is one and a half months. March inventory data released in mid-May can be used as an afterthought, and the forecasting effect on oil prices is limited. The following describes the indicators that can better track oil prices, U. S. commercial crude oil inventory data.

4.2.2 US inventory trends reflect oil price trends

EIA releases US inventory data at 22:30 on Wednesday night, and the sharp fall in oil prices this week was due to the fact that inventory data became the last straw to overwhelm oil prices. Why is the effect so obvious? inventory is the result of supply and demand. The correlation between US commercial crude oil inventory and WTI oil price is better, the correlation coefficient is up to-0.83, and the inventory data have seasonal characteristics. Excluding the influence of seasonal factors, the changing trend of US commercial crude oil inventory and the trend of oil price are more obvious. We can clearly see the cycle of inventory decline, price rise, inventory rise and price decline. From May 14 to May 21, inventories were still rising when oil prices increased. At this time, they were in the stage of bulls revelry, giving short sellers the opportunity to reduce their positions. After the release of inventories on May 22, bulls finally could not withstand the pressure. Oil prices plummeted. Enter the normal cycle of rising inventory and falling prices.

4.2.3 observe the direction of crude oil inventory from the inventory section

The reverse seasonal increase in US crude oil inventories: since US crude oil inventory data are so important, wouldn't it be good to predict the trend? a lot of institutions are doing this. Here's a simple way. According to the inventory formula: inventory change = output + import-export-processing volume, can analyze these four items clearly, you can predict inventory. The output can be judged by drilling rigs. The conclusion mentioned earlier is that the output of crude oil in the United States is stable, the import uncertainty is large, and it is difficult to predict. The export can be judged by the price difference, and the price difference between Brent and WTI is three weeks ahead of the US crude oil export. When the price difference expands, the crude oil export increases; the processing volume can be judged by the cracking price difference, the high price difference indicates that the profit is good, and the refinery starts more. After May, the crude oil inventory should have been in the de-inventory stage. At present, the gasoline cracking price difference returned to the 5-year average after a short-term rise, resulting in the refinery operation rate lower than the same period level, and the inventory showed an inverse seasonal increase. Put a lot of pressure on oil prices.

4.2.4 observation of crude oil inventory changes with refined oil inventory

The stock of distillate oil has declined, and the inventory of crude oil has increased unseasonably: after crude oil has been processed by refineries, it has become refined oil such as gasoline, diesel oil, fuel oil, and so on. The inventory of refined oil affects the price, which in turn affects the profits of refineries. The refinery will adjust the operating rate according to the profit situation, so the change of crude oil inventory can be observed through the refined oil inventory. Through the comparison, it is found that the US diesel inventory leads the crude oil inventory for 9 weeks (correlation 0.86). When the two trends are consistent, the transmission from crude oil to refined oil consumption is very smooth, and if there is a deviation, there is a problem. Recently, the stock of refined oil has declined, and the enthusiasm of refinery processing is not high, which has not led to the removal of crude oil inventory, and the crude oil is still in the accumulation stage, and the trend of the two is opposite. Judging from the trend index of the inventory of crude oil and diesel oil on the right, the trend of crude oil inventory began to increase in the week of March 22, and the inventory of diesel oil began to change from the week of April 26. There are problems with crude oil, and now there are problems with diesel oil. It shows that downstream demand is not good, so oil prices collapsed.

4.3 Price difference structure reflects excess and shortage of supply and demand

Inventory is the final data of the week. In the empty window period of lack of inventory, we can replace the inventory through the price difference and observe the expected change of supply and demand in real time. First of all, explain how the price difference shows the expectation of supply and demand. There are two states of supply and demand of any commodity: surplus and shortage. According to the basic information, the market has different expectations for contract prices in different months. Finally, two kinds of price difference structures, Contango and Backwardation, are formed. When the price difference is near low and far high Contango structure, it shows that the crude oil market is in a bear market where supply exceeds demand, and when the price difference is near high and far low Backwardation structure, indicating that crude oil market is in short supply bull market.

4.4 monthly difference instead of price difference to observe the expected change of supply and demand in real time

The expected change was observed in real time by using the monthly difference instead of the price difference structure. The price difference structure reflects the characteristics of supply and demand from the plane, which is easy to observe, but it is difficult to form an effective linkage with the settlement price of WTI. The recent contract is the main battlefield of the capital game, and the near-end monthly difference can be used to replace the price difference structure. The relationship between monthly deviation and oil price is dynamically reflected. When the monthly difference is positive, the price difference structure is near high and far low, indicating the shortage of crude oil supply, and when the monthly difference is negative, the price difference structure is near low and far high, indicating the surplus of crude oil supply. Through correlation analysis, the correlation between WTI and M1-M5 monthly difference reaches 0.86. One month before the major turning point in the crude oil market, the fluctuation range of monthly difference intensifies, reflecting the change of the market's expectation of future supply and demand, which needs to be particularly vigilant at this time. In the process of the sharp fall in oil prices on May 22, the WTI1-5 spread changed from negative to positive, indicating that in the process of falling prices, there are expectations of late OPEC production reduction and supply tightening.

4.5 inventory is the fundamental indicator and monthly difference is the expected indicator

The monthly deviation and inventory data are combined to represent the change of supply and demand. There is a logical relationship between the monthly difference and the inventory. The monthly difference is positive indicating that the supply exceeds the demand, the seller's supply is reduced, and the buyer's demand is strong. At this time, the inventory needs to be released to meet the demand, and the inventory is reduced. The negative monthly difference indicates that the supply exceeds demand, and when the monthly difference can cover the funds and warehousing costs of intertemporal arbitrage, the inventory holder can get the risk-free arbitrage opportunity from the near low and far high price difference, which leads to the increase of inventory.

Monthly differentials and inventories complement each other, combining the two to look at oil prices. When we talked about the relationship between inventory and oil prices, the changing trend of US commercial crude oil inventory has a very good negative correlation with WTI, and the fluctuation range of the trend index of crude oil inventory change is smaller, and the trend is more obvious. Therefore, this index can be used as a key fundamental indicator to judge oil prices. Inventory is the weekly time point data. In the empty window period of lack of inventory data, the high frequency monthly difference and low frequency inventory data are combined, and the monthly difference data representing the capital point of view is taken as the extension of inventory data to grasp the fluctuation law of crude oil in real time. After the release of the recent inventory data, the monthly difference and inventory change trend indicators have deviated, the inventory trend is upward, the monthly difference is not downward, still upward, indicating that the near-end price spread has overfallen, and the decline will shrink in the later period.

5 Future Prospect and Rhythm

5.1 short-term oil prices are under pressure and medium-term oil prices are supported

The reverse seasonal increase of crude oil inventory leads to the upward inventory trend, the fund short position rises, and the weekly oil price faces great pressure. The United States tightened sanctions against Iran, Russia overcut production in May, US production stabilized, and demand for OPEC crude oil increased in the second quarter. If OPEC maintains a production reduction attitude, it will support monthly oil prices.

5.2 net long positions in funds respond to smart investor attitudes

The net long head of the fund is used as a leading indicator. After talking about the trend, let's talk about how to judge the timing of entry. Oil price is the result of the sale of funds, first there are changes in positions, and then there are fluctuations in oil prices, and there are some smart people in the market, according to their own judgment of the future, early layout, CFTC refers to such positions as fund positions. The correlation between WTI and fund net long positions is 0.6, smart bulls generally close ahead of the fall, WTI bulls began to cut positions for two weeks in a row on April 30, profit, the supporting role of oil prices weakened.

5.3 when high, you need to pay attention to short positions

When oil prices reach high, they focus on short positions: compared with net long positions of funds, when oil prices reach phased highs, I think we should pay more attention to changes in short positions of funds. The correlation between short positions of funds and WTI is-0.81. The short position of the fund has the characteristics of "standing still when rising, and hammering to the end when it falls", which leads to a "slow rise and a sharp fall" in oil prices. WTI short began to increase production sharply on April 30, began to short oil prices, so in the case of negative inventory data, the fund short position is not soft, sharply depressing oil prices.

5.4 beware of volatility rising from the bottom extreme

Now that the financial markets are integrated into each other, the cross-allocation of large categories of assets among investors is becoming more and more frequent, so the psychological role of investors usually affects another market by one market. As a barometer of the economy, the stock market has important guiding significance for the development of the economy, especially the impact of the stock market in the United States on the global economy. When the stock market goes bad, economic worries will rise, and the economic downturn will affect the demand for refined oil products, which in turn will affect investors' views on the price of crude oil. Therefore, while we are studying the price of oil, The impact of the stock market on prices has to be considered. The transmission of the stock market to oil prices can be observed through volatility. VIX volatility represents the volatility of US stocks, and OVX represents the volatility of crude oil. Volatility is mainly affected by price increases and falls and market risk aversion factors. When the price of crude oil falls rapidly, ETF volatility tends to rise sharply, reflecting the extent of investor panic about falling prices.

ETF volatility can be used to indirectly confirm whether the price has a downside risk. When the ETF volatility drops and begins to wander at the bottom, we should pay attention to the reversal after the extreme value and prevent the volatility from soaring caused by unexpected events. The bottom volatility of the OVX is around 25. If the volatility breaks through 25, it indicates that the market panic has been stimulated and the market has a sharp downward trend.

Key Words:  Crude oil  price  cycle  market 

Mei Erya futures crude oil analyst Li Lei: take you to the pulse crude oil futures fluctuation law

Translation 09:29:51AM May 28, 2019 Source:The Great study of the United States
The content below was translated by Tencent automatically for reference.

SMM News: 1 Oil Price trend and Analysis Framework

1.1 rebalancing process after a sharp fall in oil prices in 19

Let's first take a look at the trend of oil prices in 19 years. On the whole, the trend of oil prices this year is in the process of rebalancing after a sharp fall in the fourth quarter of 18 years. On National Day last year, oil prices began to fall, and WTI fell from US $76 to US $42. At one point, the decline reached 45%; In 19 years, driven by OPEC+ Russia's 1.2 million b / d production cuts in six months, oil prices showed a bull market in January-April, with WTI rising 56 per cent from $42 to $66. As soon as we fell and rose, there was an interesting phenomenon, that is, as soon as we passed the holiday, the international oil price could not be tightened. Last year, it was National Day that began to decline. This year, it was International Labour Day who made a pullback. When I broadcast live on May 7, Some investors asked why this year is a correction, last year is down, what is the difference between the two paragraphs of the market, I believe after listening to the roadshow, you will have the answer.

1.2 the seasonal characteristics of international oil prices are obvious

From the oil price trend above, we can see that the oil price fluctuates a lot, rising 56% after falling 45%. Is there any rule behind the big fluctuation? Now let's show you the first rule-the seasonal characteristics of oil prices. From the 10-year seasonal chart of figure (1), we can see that oil prices tend to rise in the first quarter, and are in a volatile stage in the second and third quarters, and form the high point of the year. The decline began in the fourth quarter and bottomed out in January next year. The red line in the picture is the trend of oil prices over the past 19 years, which can be seen in line with the seasonal pattern. Figure (2) is the income chart of oil prices, you can find the same law, February, March, April long oil price returns are better, November to January is suitable for shorting oil prices. These two charts can give us a sense of experience-based rhythm. For crude oil traders, they need to pay close attention to the emergence of the top after the rise in the second quarter, and now the time seems to be at this stage, so the need to pay special attention. If you are a production enterprise, you should seize the opportunity of low prices at the end of the fourth quarter and the beginning of the first quarter.

Figure (1)

Figure (2)

From the fundamentals to understand the seasonal law of oil prices, in the first quarter, prices fell to the bottom of the region, in the expectation of better demand, oil prices began to low consolidation, after the end of consolidation, prices rose due to demand growth and inventory decline. The spring of price is coming. In the second quarter, demand continued to improve, inventories continued to decline, as prices accumulated a certain increase, the market is full of vitality, prices into the summer. In the third quarter, refineries began to overhaul, demand entered the end, inventories began to grow, oil prices began to show fatigue, prices came in the autumn. In the fourth quarter, prices tend to start to fall due to concerns about demand and inventories, and winter is coming.

1.3 crude oil price analysis framework

After talking about the oil price market and seasonal characteristics, here are the key points that affect the trend of oil prices. This chart is the framework for my analysis of crude oil. Crude oil has three attributes: commodity, financial and political. We can analyze many factors that affect crude oil in these three attributes. For example, US sanctions against Iran are a political attribute, and at the same time, they transmit influence to commodity attributes through exports. Personally, I think that the analysis of geopolitical events must be based on supply and demand data in order to judge the influence. In addition, the supply and demand data of crude oil are divided into long-term, medium-term and short-term factors according to the time dimension. When designing a strategy, we should consider the time dimension, under different time dimensions. The logic we analyze is different from the indicators we track. in a long-term strategy, we have to ignore short-period variables. On the contrary, we can not use a long causal logic line to do a very short transaction.

After talking about the framework, let's talk about the process of analyzing crude oil. Crude oil research and doing experiments are the same. It is a cold process that needs to be traced from a large amount of data. Crude oil research is such a process, first of all, to establish a huge analytical framework, from the framework to find the law, once found a good law will feel excited, because it can bring endless value to the whole research; Then look for data to verify the prediction based on the law, and finally draw a falsifiable conclusion. Falsification says that prediction must be falsifiable in principle, not that it is wrong at this stage, but that there must be a way to prove it wrong. If you can't falsify based on the current data, accept this conclusion for the time being; if you find that some data prove it wrong, try to establish a new logic to replace the original hypothesis and accept the new conclusion. As we can see, in fact, the study of crude oil is not very deep, which is a process of looking for rules based on experience.

In addition, we should pay attention to both the absolute value and the trend when we do the crude oil analysis. To analyze the absolute value is to compare it with the historical high and low point, so that we can know the scope and position of the variable. The trend of analysis is to find the relationship between the direction of variables and the direction of changes in oil prices. For example, the crude oil process was serious in the fourth quarter of 18, and it was still in surplus in the first quarter of 19, but the surplus has been reduced, and the oil price has not fallen because of the surplus. It's going up in the process of shrinking the surplus, so I think the trend ratio is more important.

2 demand side analysis

Crude oil is a commodity with rigid demand, which affects the long-term oil price and provides us with the general direction of the year. The demand for crude oil is closely related to the macro-economy. Director Fan has just conducted an in-depth analysis of the macro-economic trend. I would like to talk a little bit about the relationship between the demand for crude oil and the macro-economy.

2.1 increased downside risks to the global economy, driving demand for crude oil weaker

The change in crude oil demand is synchronized with global economic growth: let's take a look at the relationship between GDP and crude oil demand. The compound growth rate of global crude oil consumption is 2.09%, which is basically in line with the global GDP growth. The change of crude oil demand is synchronized with the global economic growth, and the correlation coefficient is 0.82, which can be used to analyze the long-term change of crude oil demand based on global economic growth. This year, China's economy has bottomed out again, the growth rate of the US economy may slow down, the European economy has begun to decline, the impact of the trade situation has been superimposed, the downside risks to the global economy have increased, and the IMF has lowered its economic growth forecast, leading to weaker demand for crude oil.

2.2 the demand increment is reduced by the organization, and the pressure on the demand side is greater.

Having said that, we will take a look at the demand for crude oil. First, we will take a look at the expectations of EIA and OPEC for the increase in demand for crude oil in 19 years. The intuitive feeling is that due to the impact of the trade situation, the three major institutions have reduced the increase in demand for 19 years in a row. EIA cut demand growth for 19 years for five consecutive months, forecasting an increase of 1.38 million barrels per day for 19 years, slightly less than the increase of 1.54 million barrels per day in 18 years. OPEC began to measure 19 years of demand in July 18, and has since been downgraded continuously. The latest monthly report forecasts that crude oil demand will increase by 1.21 million barrels per day in 19 years, down from 1.5 million barrels per day in 18 years. Through the forecasts of the above institutions, we can see that the increase in demand in 19 years is 120-1.4 million barrels per day, that is to say, the downward pressure on the economy is relatively high, and demand expectations are not optimistic. EIA expects U.S. crude oil production to increase by 1.55 million barrels a day in 19 years, so OPEC has to cut production.

3 crude oil supply-side analysis

Crude oil is a special commodity with oligarch supply and rigid demand. Demand dominates long-cycle oil prices and supply dominates the trend of medium-and short-cycle oil prices, so there are more comments on the supply side when we communicate. When analyzing the supply side, we should pay attention to the total and marginal changes. In terms of total quantity, the United States, Saudi Arabia and Russia are tens of millions of barrels of oil producers, which is why crude oil is a commodity for oligarchs; From an incremental point of view, the United States is the country with the largest increase in supply in 17 years, and Saudi Arabia is the country with the most production reduction, so on the supply side, we should pay attention to the situation of the United States and Saudi Arabia. Since Saudi Arabia is the leading eldest brother of the OPEC, they act together. So we include Saudi Arabia in OPEC, in addition to OPEC and the United States, the rest is Russia-led non-American and non-OPEC countries. In other words, we divide the supply side into three parts: OPEC, the United States, and non-American and non-OPEC.

3.1 past and present lives of Iranian sanctions

The most popular topic on the supply side recently is US sanctions against Iran, which is the main factor affecting current oil prices. Let's first review the history of Iranian sanctions, dating back to 2010 and June 2010. the United Nations Security Council imposed sanctions on Iran. Freeze the assets of 40 entities in Iran. In December 2011, the United States announced the Defense Authorization Act for Fiscal year 2012, which stipulates that if a country's financial institutions continue to buy oil from Iran through the Iranian Central Bank, The United States has cut off all financial institutions in the country from the US banking system; In January 2013, the Defense Authorization Act for Fiscal year 2013 tightened sanctions against Iran in the areas of energy, shipping and shipbuilding, and specifically restricted barter to prevent Iran from circumventing sanctions. Iran's crude oil production fell from 380 to 2.7 million barrels, down 1.1 million barrels a day. By January 2016, the Iran nuclear agreement officially began to implement, the United States and the European Union lifted sanctions against Iran, crude oil production from 2.8 million barrels per day to 3.8 million barrels per day. On May 8, 2018, the United States withdrew from the Iranian nuclear agreement, reinstated sanctions against Iran and restricted Iranian oil exports. In November, the United States officially imposed sanctions on Iran, but at the same time exempted eight countries and regions from continuing to import Iranian crude oil, superimposed OPEC to increase production, and oil prices plummeted.

3.2 US sanctions against Iran fall sharply

Iran's crude oil exports have fallen sharply, sparking a short-term supply threat. In November last year, the United States granted Iran oil import immunity for 180 days to eight countries and regions, including China, and Iran's crude oil exports reached a level of 1.4 million barrels per day in March. The United States ended the exemption of Iran's crude oil import ban in order to reduce Iran's crude oil exports to zero, and oil prices continued to rise in April. But when it came into effect on May 2, Trump asked Saudi Arabia and other countries to increase production, and international oil prices began to fall.

In April, Iranian crude oil exports fell 530000 barrels a day to 870000 barrels a day, Chinese imports fell to 270000 barrels, Indian imports fell to 330000 barrels, Turkey fell to 100000 barrels, and South Korea, Japan, Taiwan, Italy and Greece all stopped importing. PetroChina and Sinopec stopped importing crude oil from Iran in May. Lured by huge benefits, Iranians use motorcycles to ship 130000 barrels of crude oil a day to Pakistan. Preliminary tracking data show that Iranian crude oil exports fell to 470000 barrels a day in May, and the destination is unclear.

With exports tightened, crude oil production fell by 164000 barrels per day to 2.554 million barrels per day, below the lowest level of the previous round of sanctions (2012-2015) (2.66 million barrels per day). Production in May is likely to fall to levels seen since the Iraq war in the 1980s.

It is a question of which countries can replace Iran's crude oil exports, which can be replaced by medium and heavy crude from Saudi Arabia, Iraq, Russia and the United Arab Emirates. As for condensate, Qatar and Australia are ready to intervene.

3.3 OPEC's current policy is to reduce production and raise prices

After talking about the impact of US-Iraq sanctions, we will talk about the question of whether OPEC can increase production and fill gaps in the end. Before we talk about this issue, let's first review the OPEC policy. The OPEC policy has experienced flexible adjustment from 2000 to 2014, increasing production and insurance from 2014 to 2015, reducing production and raising prices from 2017 to March 2018, and increasing production and filling gaps after 3 months. In the fourth quarter of last year, OPEC defended oil prices with production cuts as oil prices fell all the way to around $60, below the Middle Eastern fiscal balance of $80 and inventories hit the five-year average. The production reduction alliance reached a new production reduction agreement on December 7, which reduced production by 1.2 million barrels per day on the basis of crude oil production in October, including 800000 barrels per day for OPEC, 400000 barrels per day for non-OPEC, and 230000 barrels per day for Russia. It was implemented in January 2019 and lasted until the end of June 19.

Why would OPEC cut production because of budget oil prices, which IMF estimates will be $85, $64, $64, $126 and $49 per barrel for Saudi Arabia, Iraq, the United Arab Emirates, Iran and Kuwait, respectively, to achieve budget balance in 19 years. OPEC crude oil production accounts for 42% of the world's total crude oil production, which is related to the average Brent price of 0.75. OPEC controls oil prices through production.

3.4 OPEC production decline slows, Saudi Arabia is unable to reduce production

After talking about the change of OPEC production reduction policy, let's take a look at the specific situation of OPEC production reduction. Crude oil production in OPEC 14 countries fell by 3000 b / d to 30.03 million b / d in April, down from 520000 b / d in March, and production has stabilized. Production increases in Iraq and Nigeria offset production cuts in Saudi Arabia and Angola, while production in OPEC 11 production countries increased slightly by 30, 000 barrels per day, and the implementation rate of production reduction fell from 151 per cent to 146 per cent, showing signs of loosening.

Let's simply calculate how much OPEC can increase in different cases. The target output of OPEC 11 reducing countries is 26.7 million b / d, and if the implementation rate of 100% production reduction is maintained in the later stage, the yield can be increased by 370000 b / d, and can be increased by 1.17 million b / d when it returns to the production level in October last year. Iran exported 870000 barrels of crude oil a day in April, and the OPEC has the ability to make up for Iran's supply gap. From the relationship between OPEC production and oil prices, we can see that when OPEC increases production, OPEC oil prices will decline to varying degrees.

Just mentioned that Saudi Arabia is the spiritual leader of OPEC: in April, Saudi crude oil production fell by 45000 barrels per day to 9.742 million barrels per day, already below the minimum production of 9.8 million barrels per day in the previous round of production cuts (January 17). Saudi Arabia's target production reduction in this round is 10.2 million barrels per day, which has exceeded the production reduction task, and the space for decline is limited in the later period. Saudi energy ministers said at a meeting on May 19 that production would remain near 9.8 million barrels per day in May and June. I expect a seasonal increase in Saudi production in May to meet demand from power plants. Preliminary data show that Saudi crude oil exports in May increased by 160000 barrels to 7.1 million barrels per day, compared with 6.94 million barrels per day in April. South Korea originally imported a large amount of Iranian condensate oil, but now imports Saudi oil.

3.5 pollution of crude oil pipelines in Russia, with an expanded decline in production in May

Russian pipelines have been contaminated and forced to cut production. In April, Russia stepped up its efforts to reduce production, with crude oil production falling by 70,000 barrels per day to 11.23 million barrels per day, and the implementation rate of production reduction increased to 80 per cent. Recently, Russia to Western Europe, a friendship transport pipeline with a transport volume of 1 million barrels per day. Contaminated by organic chloride, supply was suspended because the chloride content exceeded the requirements of European refineries, crude oil exports were affected, and Rosneft asked oil producers to reduce production as of 12 May. Russian production has fallen to 11.16 million b / d, below the target of 11.18 million b / d, and the Russian energy minister expects the implementation rate of Russia's oil production reduction to be slightly more than 100 per cent in May. At present, about 170000 barrels of crude oil per day is transported to Western Europe through the South Friendship Pipeline.

3.6 the decline of drilling rigs affects production, and the output of the United States tends to stabilize in the short term.

The decline of crude oil drilling rigs limits production growth: from the logic of oil price, drilling rig and output, the number of crude oil drilling rigs in the United States began to decline in January and is still in the impact of a sharp drop in the fourth quarter of 18. the number of drilling rigs leads crude oil production by 20 weeks. The decline in the number of drilling rigs limits the growth of crude oil production. EIA expects US crude oil production to be at 12.45 million barrels per day from May to July, and will increase by 200000 barrels to 12.65 million barrels per day as the pipeline goes into operation in August, reaching 13.16 million barrels per day by the end of 19 years.

4 Summary of supply and demand of crude oil

The above mainly combs the main variables of supply and demand fundamentals. We can see that Russia's production reduction expanded in May and US production stabilized. If OPEC maintains its attitude of reducing production at this time, the global crude oil supply is tightening. Oil prices are supported by supply as they fall. But from supply or demand alone, we can't directly conclude that when trading oil prices, oh, we need to know the results of supply and demand in the crude oil market, and as I mentioned earlier, we need to know the changing trend. This is what I'm going to talk about later, using trend indicators to trade oil prices.

4.1 demand for OPEC increased in the second quarter, making room for increased production

Demand for OPEC increased in the second quarter, making room for increased production. Each month, the three major institutions publish crude oil market reports, which will make a summary of the quarterly crude oil supply and demand balance. According to the crude oil supply and demand balance predicted by the OPEC, the average output of OPEC crude oil in the first quarter of 19 was 30.5 million barrels. It is almost equivalent to demand for OPEC, with a slight surplus of 20, 000 barrels a day throughout the first quarter. By the second quarter, demand for OPEC crude oil will increase by 500000 barrels to 30.95 million barrels per day. In April, OPEC crude oil production was 30.03 million barrels per day. OPEC can increase production by 920000 barrels per day in the second quarter while maintaining a tight balance. When there is room to increase production, the determination of OPEC to reduce production in the later period depends on the oil price. If the oil price falls sharply recently, it can just set the determination for the OPEC to reduce production, and on the contrary, it will support the oil price in the future.

4.2.1 reduction in production leads to decline in OECD commercial oil stocks

OECD commercial inventory decline, the effect of production reduction. On 19 May, at the meeting of the Ministerial Supervisory Committee, the Minister of Energy of Saudi Arabia stressed the need to promote the development of the market in a balanced direction and return stocks to normal levels, which is referred to here as OECD commercial oil stocks. The normal level is the five-year average. Why is OPEC so concerned about this figure, because the correlation between OECD commercial oil stocks and the average Brent price is 0.85, compared with $85 a barrel for Saudi Arabia to achieve budget balance in 19 years, and Saudi Arabia wants to raise oil prices by reducing inventories. In March, OECD commercial oil stocks fell to 2.849 billion barrels, below the five-year average of 2.2 million barrels, and OPEC production cuts improved global crude oil supply and demand, causing global oil stocks to fall for two consecutive months. In April, the decline in OPEC production slowed, inventories in the United States and Japan increased, inventories in Europe fell, and inventories were more likely to recover in April. This indicator is good or good, but the time lag is one and a half months. March inventory data released in mid-May can be used as an afterthought, and the forecasting effect on oil prices is limited. The following describes the indicators that can better track oil prices, U. S. commercial crude oil inventory data.

4.2.2 US inventory trends reflect oil price trends

EIA releases US inventory data at 22:30 on Wednesday night, and the sharp fall in oil prices this week was due to the fact that inventory data became the last straw to overwhelm oil prices. Why is the effect so obvious? inventory is the result of supply and demand. The correlation between US commercial crude oil inventory and WTI oil price is better, the correlation coefficient is up to-0.83, and the inventory data have seasonal characteristics. Excluding the influence of seasonal factors, the changing trend of US commercial crude oil inventory and the trend of oil price are more obvious. We can clearly see the cycle of inventory decline, price rise, inventory rise and price decline. From May 14 to May 21, inventories were still rising when oil prices increased. At this time, they were in the stage of bulls revelry, giving short sellers the opportunity to reduce their positions. After the release of inventories on May 22, bulls finally could not withstand the pressure. Oil prices plummeted. Enter the normal cycle of rising inventory and falling prices.

4.2.3 observe the direction of crude oil inventory from the inventory section

The reverse seasonal increase in US crude oil inventories: since US crude oil inventory data are so important, wouldn't it be good to predict the trend? a lot of institutions are doing this. Here's a simple way. According to the inventory formula: inventory change = output + import-export-processing volume, can analyze these four items clearly, you can predict inventory. The output can be judged by drilling rigs. The conclusion mentioned earlier is that the output of crude oil in the United States is stable, the import uncertainty is large, and it is difficult to predict. The export can be judged by the price difference, and the price difference between Brent and WTI is three weeks ahead of the US crude oil export. When the price difference expands, the crude oil export increases; the processing volume can be judged by the cracking price difference, the high price difference indicates that the profit is good, and the refinery starts more. After May, the crude oil inventory should have been in the de-inventory stage. At present, the gasoline cracking price difference returned to the 5-year average after a short-term rise, resulting in the refinery operation rate lower than the same period level, and the inventory showed an inverse seasonal increase. Put a lot of pressure on oil prices.

4.2.4 observation of crude oil inventory changes with refined oil inventory

The stock of distillate oil has declined, and the inventory of crude oil has increased unseasonably: after crude oil has been processed by refineries, it has become refined oil such as gasoline, diesel oil, fuel oil, and so on. The inventory of refined oil affects the price, which in turn affects the profits of refineries. The refinery will adjust the operating rate according to the profit situation, so the change of crude oil inventory can be observed through the refined oil inventory. Through the comparison, it is found that the US diesel inventory leads the crude oil inventory for 9 weeks (correlation 0.86). When the two trends are consistent, the transmission from crude oil to refined oil consumption is very smooth, and if there is a deviation, there is a problem. Recently, the stock of refined oil has declined, and the enthusiasm of refinery processing is not high, which has not led to the removal of crude oil inventory, and the crude oil is still in the accumulation stage, and the trend of the two is opposite. Judging from the trend index of the inventory of crude oil and diesel oil on the right, the trend of crude oil inventory began to increase in the week of March 22, and the inventory of diesel oil began to change from the week of April 26. There are problems with crude oil, and now there are problems with diesel oil. It shows that downstream demand is not good, so oil prices collapsed.

4.3 Price difference structure reflects excess and shortage of supply and demand

Inventory is the final data of the week. In the empty window period of lack of inventory, we can replace the inventory through the price difference and observe the expected change of supply and demand in real time. First of all, explain how the price difference shows the expectation of supply and demand. There are two states of supply and demand of any commodity: surplus and shortage. According to the basic information, the market has different expectations for contract prices in different months. Finally, two kinds of price difference structures, Contango and Backwardation, are formed. When the price difference is near low and far high Contango structure, it shows that the crude oil market is in a bear market where supply exceeds demand, and when the price difference is near high and far low Backwardation structure, indicating that crude oil market is in short supply bull market.

4.4 monthly difference instead of price difference to observe the expected change of supply and demand in real time

The expected change was observed in real time by using the monthly difference instead of the price difference structure. The price difference structure reflects the characteristics of supply and demand from the plane, which is easy to observe, but it is difficult to form an effective linkage with the settlement price of WTI. The recent contract is the main battlefield of the capital game, and the near-end monthly difference can be used to replace the price difference structure. The relationship between monthly deviation and oil price is dynamically reflected. When the monthly difference is positive, the price difference structure is near high and far low, indicating the shortage of crude oil supply, and when the monthly difference is negative, the price difference structure is near low and far high, indicating the surplus of crude oil supply. Through correlation analysis, the correlation between WTI and M1-M5 monthly difference reaches 0.86. One month before the major turning point in the crude oil market, the fluctuation range of monthly difference intensifies, reflecting the change of the market's expectation of future supply and demand, which needs to be particularly vigilant at this time. In the process of the sharp fall in oil prices on May 22, the WTI1-5 spread changed from negative to positive, indicating that in the process of falling prices, there are expectations of late OPEC production reduction and supply tightening.

4.5 inventory is the fundamental indicator and monthly difference is the expected indicator

The monthly deviation and inventory data are combined to represent the change of supply and demand. There is a logical relationship between the monthly difference and the inventory. The monthly difference is positive indicating that the supply exceeds the demand, the seller's supply is reduced, and the buyer's demand is strong. At this time, the inventory needs to be released to meet the demand, and the inventory is reduced. The negative monthly difference indicates that the supply exceeds demand, and when the monthly difference can cover the funds and warehousing costs of intertemporal arbitrage, the inventory holder can get the risk-free arbitrage opportunity from the near low and far high price difference, which leads to the increase of inventory.

Monthly differentials and inventories complement each other, combining the two to look at oil prices. When we talked about the relationship between inventory and oil prices, the changing trend of US commercial crude oil inventory has a very good negative correlation with WTI, and the fluctuation range of the trend index of crude oil inventory change is smaller, and the trend is more obvious. Therefore, this index can be used as a key fundamental indicator to judge oil prices. Inventory is the weekly time point data. In the empty window period of lack of inventory data, the high frequency monthly difference and low frequency inventory data are combined, and the monthly difference data representing the capital point of view is taken as the extension of inventory data to grasp the fluctuation law of crude oil in real time. After the release of the recent inventory data, the monthly difference and inventory change trend indicators have deviated, the inventory trend is upward, the monthly difference is not downward, still upward, indicating that the near-end price spread has overfallen, and the decline will shrink in the later period.

5 Future Prospect and Rhythm

5.1 short-term oil prices are under pressure and medium-term oil prices are supported

The reverse seasonal increase of crude oil inventory leads to the upward inventory trend, the fund short position rises, and the weekly oil price faces great pressure. The United States tightened sanctions against Iran, Russia overcut production in May, US production stabilized, and demand for OPEC crude oil increased in the second quarter. If OPEC maintains a production reduction attitude, it will support monthly oil prices.

5.2 net long positions in funds respond to smart investor attitudes

The net long head of the fund is used as a leading indicator. After talking about the trend, let's talk about how to judge the timing of entry. Oil price is the result of the sale of funds, first there are changes in positions, and then there are fluctuations in oil prices, and there are some smart people in the market, according to their own judgment of the future, early layout, CFTC refers to such positions as fund positions. The correlation between WTI and fund net long positions is 0.6, smart bulls generally close ahead of the fall, WTI bulls began to cut positions for two weeks in a row on April 30, profit, the supporting role of oil prices weakened.

5.3 when high, you need to pay attention to short positions

When oil prices reach high, they focus on short positions: compared with net long positions of funds, when oil prices reach phased highs, I think we should pay more attention to changes in short positions of funds. The correlation between short positions of funds and WTI is-0.81. The short position of the fund has the characteristics of "standing still when rising, and hammering to the end when it falls", which leads to a "slow rise and a sharp fall" in oil prices. WTI short began to increase production sharply on April 30, began to short oil prices, so in the case of negative inventory data, the fund short position is not soft, sharply depressing oil prices.

5.4 beware of volatility rising from the bottom extreme

Now that the financial markets are integrated into each other, the cross-allocation of large categories of assets among investors is becoming more and more frequent, so the psychological role of investors usually affects another market by one market. As a barometer of the economy, the stock market has important guiding significance for the development of the economy, especially the impact of the stock market in the United States on the global economy. When the stock market goes bad, economic worries will rise, and the economic downturn will affect the demand for refined oil products, which in turn will affect investors' views on the price of crude oil. Therefore, while we are studying the price of oil, The impact of the stock market on prices has to be considered. The transmission of the stock market to oil prices can be observed through volatility. VIX volatility represents the volatility of US stocks, and OVX represents the volatility of crude oil. Volatility is mainly affected by price increases and falls and market risk aversion factors. When the price of crude oil falls rapidly, ETF volatility tends to rise sharply, reflecting the extent of investor panic about falling prices.

ETF volatility can be used to indirectly confirm whether the price has a downside risk. When the ETF volatility drops and begins to wander at the bottom, we should pay attention to the reversal after the extreme value and prevent the volatility from soaring caused by unexpected events. The bottom volatility of the OVX is around 25. If the volatility breaks through 25, it indicates that the market panic has been stimulated and the market has a sharp downward trend.

Key Words:  Crude oil  price  cycle  market