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"Five Reasons" Prompt International Oil Price Slump

"Five Reasons" Prompt International Oil Price Slump

(Summary description) Global benchmark Brent crude plummeted 6.1% to a one-year low of $ 58.80 per barrel, and fell 22% this month, making oil prices, which have recently hit lows, again a global focus.

"Five Reasons" Prompt International Oil Price Slump

(Summary description) Global benchmark Brent crude plummeted 6.1% to a one-year low of $ 58.80 per barrel, and fell 22% this month, making oil prices, which have recently hit lows, again a global focus.


  Global benchmark Brent crude plummeted 6.1% to a one-year low of $ 58.80 per barrel, and fell 22% this month, making oil prices, which have recently hit lows, again a global focus.


  On November 23, the downward trend in oil prices intensified. Brent crude oil plummeted 6.1% to $ 58.80 per barrel, and WTI crude oil prices in New York fell 7.7% to $ 50.42 per barrel, setting a new low in a year. Two global crude oil pricing benchmarks: Brent and West Texas Intermediate (WTI) crude are already in a bear market.


  According to the definition of the international market, this means that the price and recent peak of both have fallen by at least 20%.


  Currently, oil price volatility has soared to its highest point since 2016, and investors are eager to take protective measures to prevent prices from falling further. Volatility is a measure of investor demand for specific options. Very bearish recently sold options. The volatility of their options has exceeded 60%, which is twice the rate two weeks ago.


  Falling oil prices have also increased pressure on U.S. energy stocks. In the past week, BP's stock price has fallen 2.4%, and Royal Dutch Shell's stock price has fallen 5.5%. Exxon Mobil fell 4.4%, while U.S. shale oil pioneer Natural Resources fell 6.0%. The energy index fell, dragging the S & P 500 back to the correction zone. The decline in US stocks since the September 21 high has expanded to 10%.


  Flynn, a senior market analyst at the Futures Price Group, said that concerns about slowing global energy demand and China's possible slowdown have made investors worry that oil prices will become an ominous signal for the global market. CMC Markets market analyst Madden believes that traders are beginning to doubt whether the downturn in the oil market also reflects future weak demand, which has an expected impact on prices and puts oil prices in a vicious circle.


  Industry experts say there are five major reasons for the plunge in oil prices:


  The first is technical factors: technical factors mainly come from shrinking trading volume. Last Friday was the first day after Thanksgiving in the United States. Traders said Friday's decline was at least partly attributable to a reduction in trading volume in the commodity market closing range after Thanksgiving. Lower trading activity may exacerbate the trend of assets, and crude oil has already fallen into a vicious downward trend, which will only cause prices to fall rapidly.


  The second is that the crude oil leveraged trading amplifies the decline: traders said that the decline last Friday was another factor due to the speculative activities of hedge fund oil. Clients who make leveraged bets on oil prices will lose money when the oil price plummets, and will be required by the broker to pay additional funds to meet the minimum margin requirements, which will result in a margin call. Margin calls may lead to forced sell-offs, amplifying upward and downward movements.


  The $ 1 billion Andulan commodity hedge fund fell 20% in October because of a reversing trend in oil prices, and the fund has fallen 12% this year. The plunge in oil prices in November will also cost many leveraged funds that are optimistic about the recovery in oil prices.


  The third is that the market may be oversupplied: US marginalization of sanctions on Iran has been eased, and supply tensions have eased in the short term; on the other hand, the United States has become the world's largest oil producer and crude oil inventories have risen for many weeks. The U.S. Energy Information Administration said earlier this year that U.S. oil production topped 11 million barrels per day. In addition, OPEC production is at its highest level since 2016, and Russia and Saudi Arabia, the major producers, have also reached record highs.


  In addition, China ’s demand for petroleum by-product gasoline has fallen to its lowest level in 13 months. According to Reuters, trade disputes are hurting demand for oil in the world ’s second largest economy and the largest energy importer. These factors have raised concerns that supply exceeds demand in the current market.


  Fourth, Trump supports falling oil prices, and Saudi Arabia cannot push oil prices higher: US President Trump has been advocating for lower oil prices and tweeted last week, urging crude prices to fall, and thanked Saudi Arabia for the recent drop in oil prices He hopes to keep fuel prices low and maintain arms exports to Saudi Arabia.


  Finally, the dollar rose: a rise in the dollar is not conducive to a recovery in oil prices priced in dollars. When the US dollar appreciates, the equivalent of the assets priced by it also appreciates, which means more expensive for buyers using other currencies. Since this year, the US dollar index has been in an upward channel. From the low point in late September to the present, the US dollar index has risen by 2.52%, returning to the level of mid-2017.


  G20 summit or turning point in oil prices


  The OPEC meeting to decide whether to limit production is scheduled to be held in Vienna on December 6, but just before that, the G20 summit in Buenos Aires may decide ahead of time the trend of oil prices in 2019. Saudi Crown Prince Salman and Russian President Vladimir Putin have led the world's two largest oil exporters and have been jointly managing the oil market for the past two years. They plan to enter the Argentine capital this week. Equally important is US President Trump, who in his Twitter diplomacy opposed OPEC's push for higher oil prices. Many energy analysts expect Trump, Salman and Putin to discuss oil prices at the G20 summit.


  According to foreign media reports, Saudi and Russian energy ministers plan to travel to Buenos Aires with their heads. Their possible presence reinforces the impression that Saudi Arabia and Russia will reach an agreement in advance.


  It is understood that this is not the first time that the two energy superpowers have used the G20 to determine oil policy. At the China Summit in Hangzhou in early September 2016, Putin and Salman discussed how to revive oil prices. Hours after the private meeting, Saudi and Russian oil ministers attended a joint press conference. A few days later, they announced that the Organization of the Petroleum Exporting Countries and some non-OPEC countries would cut production. In the following year, oil prices started to pick up gradually. However, because the United States requires Saudi Arabia to limit oil prices, three-party participation is more complicated than the two giants' decision-making. According to market analysis, Saudi Arabia may still agree to reduce supply, but the final scale of the reduction may be lower, or it may be necessary to unilaterally reduce output without a formal agreement to avoid provoking the United States. (From the official website of Changxing Island Petrochemical Market)

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