SMM5 March 19: the (CME) June US oil contract of the Chicago Stock Exchange will end electronic trading at 5:00 Beijing time on the 20th, while the oil price which plummeted to negative when the contract was delivered in May last year caused a global sensation. However, the fundamentals and market mentality of the oil market have improved significantly this month, and the re-emergence of negative oil prices is a low probability event. And the major domestic banks completed the monthly shift of positions in Metro last week. There are signs that demand for crude oil has rebounded, and it is hard to repeat the all-time low of minus $40 a barrel last month.
In terms of storage capacity, Cushing crude stocks fell more than 5 million barrels from the previous week to more than 59 million barrels as of Friday, according to Genscape, an energy data service. On the supply side, signs that countries such as the Organization of Petroleum Exporting countries (OPEC) and Russia are actually implementing production reduction agreements have also boosted the oil market. According to tracking oil export data, the Organization of Petroleum Exporting countries (OPEC) slashed its oil exports in the first half of May, indicating that the organization is off to a good start in complying with the new production reduction agreement. Coupled with improved investor confidence, more voluntary production cuts are expected in June as OPEC+ significantly cut production this month as promised. On the demand side, market investors are also optimistic that global unsealing will help boost economic activity and fuel demand.
In addition, US crude oil production fell, further supporting oil prices. Shale oil production in the seven largest shale basins in the United States is expected to fall to 7.822 million barrels a day in June, the lowest since August 2018, and a record drop of 197000 barrels a day, according to the U.S. Energy Information Administration (EIA),).
However, we still need to be cautious in the later stage, the demand for crude oil has rebounded slowly, the restrictions have not yet been fully lifted, and the risk of another outbreak and repeated blockade measures has not been eliminated.
Institutional point of view
Barclays Commodity Research raised its oil price forecasts for this year and next as supply cuts offset a drop in demand caused by anti-epidemic restrictions. Recently, several (OPEC) members of the Organization of Petroleum Exporting countries (OPEC), including Saudi Arabia, said that their production cuts would be larger than originally promised. Oil producers in the United States and Canada have cut production by 1.7 million barrels a day, far more than expected.
'We have taken basically the right steps to make the foothold more secure, 'said Helima Croft, head of (RBC) strategy at Royal Bank of Canada. With the improvement of demand in the United States and other major consumers of crude oil, the OPEC ended its long-standing discord and agreed to significantly reduce production, and signs of a rebound in oil prices have emerged.
Francisco Blanch, global head of commodities and derivatives at Bank of America, said the current rally will continue, but prices will not rise that high and the ceiling for the rebound in oil prices is very low. I think if the oil price is close to $40 a barrel, then production will recover soon.
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