On June 8, the second "Cloud Meeting" series of seminars on Dishuihu Financial Bay hosted by Shanghai Oil and Gas Trading Center was held. With the theme of "Analysis of the Oil and Gas Market under the Current Complex Situation", the conference discussed the trend of the international oil and gas market under the conflict between Russia and Ukraine and its impact on China.
Wen | Our reporter Li Ling
The reporter learned at the meeting that the geopolitical situation caused by the conflict between Russia and Ukraine will dominate the trend of the international oil and gas market during the year. The EU has imposed an oil export embargo on Russia, and the geopolitical premium is difficult to eliminate in the short term. It is expected that in the context of the continued high international oil prices throughout the year and the average price of Brent crude oil exceeding US $100 per barrel, my country's annual oil import expenditure may increase by more than US $100 billion. In this regard, industry experts call for China to speed up the construction of an oil and gas price system that reflects the supply and demand situation of the Asian market.
Supply-side uncertainty supports higher oil prices
According to Dai Jiquan, director of the Petroleum Market Institute of the China Petroleum Institute of Economics and Technology, the current geopolitical conflicts have greatly increased the uncertainty on the world oil supply side, and the global oil supply and demand pattern is undergoing profound adjustments, forming an important support for international oil prices.
On June 2, the EU formally adopted a sixth round of sanctions against Russia. According to the sanctions plan, the EU will gradually stop member states from purchasing Russian crude oil by sea in the next six months, and stop importing Russian refined oil products by sea in the next eight months. It is expected that by the end of this year, the EU's oil imports from Russia will be reduced by more than 90%.
In fact, since the conflict between Russia and Ukraine, Russian oil production has declined significantly. EIA data show that Russia's oil (including crude oil, condensate, NGLs) production in April this year decreased by 960000 barrels/day month-on-month, to 10.4 million barrels/day, the lowest since November 2020. Among them, crude oil production decreased by 900000 barrels/day month-on-month to 9.1 million barrels/day. EIA predicts that from May to July, Russian crude oil production will decrease by 700000 barrels/day, 610000 barrels/day, and 570000 barrels/day respectively, and will drop to 7.2 million barrels/day from July.
"On the whole, the current high international oil prices are very important because of the sharp decline in Russian crude oil production, which has led to a decline in global oil supply." Dai Jiquan said, "On the other hand, although OPEC is gradually reducing the scale of production cuts, but its production target has not been achieved, and the gap with the production target is growing. In April this year, the gap reached more than 2.6 million barrels per day. The market is also doubting OPEC's production potential and supply capacity. That's why after OPEC announced an increase in production, international oil prices rose instead of falling."
"In the medium and long term, oil demand will continue to grow, while upstream investment will be restricted, and the probability of imbalance between supply and demand will increase." Dai Jiquan further said.
China's crude oil import volume reduction price rise
Market data show that both WTI crude oil futures and Brent crude oil futures have exceeded the $120/barrel mark, up about 60% from the beginning of the year.
Many participants believed that the high global oil price will have a deep impact on China.
"At present, China has become a major oil and gas importer in the world and an important oil and gas consumer market in the world. In 2021, China's external dependence on crude oil is 72.2 per cent and on natural gas is 46 per cent. Since the outbreak of the conflict between Russia and Ukraine, the international oil and gas prices have risen sharply, and the domestic market has been affected by the transmission of international prices, and the prices of refined oil and natural gas have risen. On May 30, the price of domestic refined oil ushered in the 9th increase in the year, and No. 92 gasoline entered the era of 9 yuan." Zhang Chunjun, deputy general manager of Shanghai Oil and Gas Trading Center, said.
Dai Jiquan also pointed out that in the context of the current domestic economy affected by the new coronary pneumonia epidemic, China's oil imports have declined, but import spending has increased significantly. From January to April this year, 0.17 billion tons of crude oil were imported, a decrease of about 10 million tons compared with the same period in 2021, but the import amount reached 115.1 billion billion US dollars, an increase of 40.1 billion US dollars compared with the same period last year. "According to our estimates, if the average price of crude oil reaches $100 per barrel this year, import spending will increase by more than $100 billion, accounting for about 15 percent of China's trade surplus in 2021. It will have an important impact on China's RMB exchange rate and balance of payments."
It is important to reflect the real market supply and demand in our country.
Under the extremely uncertain international energy situation, it is very important to speed up the construction of an oil and gas price system that can reflect the Asian market.
"my country still lacks an oil and gas trading market and pricing center that matches its market position, and it is difficult to objectively reflect my country's real market supply and demand relationship in international trade negotiations." Zhang Chunjun said, "at the same time, with the deepening of China's oil and gas market reform, the establishment and operation of the national pipeline network company, the upstream oil and gas resources multi-subject multi-channel supply, the midstream unified pipeline network efficient gathering and transportation, the downstream sales market fully competitive oil and gas market system is gradually taking shape, the level of marketization continues to improve. In this context, my country has accelerated the exploration of the construction of a market-oriented and professional international oil and gas trading center, further improved market transparency, and built an oil and gas price system that reflects the supply and demand of the Asian market, which meets the needs of current market development, and the conditions are becoming increasingly mature."
At present, China has international energy trading venues such as Shanghai Futures Exchange and Shanghai Oil and Gas Trading Center. Among them, INE crude oil futures on the Shanghai Futures Exchange has become the world's third largest crude oil futures after WTI crude oil and Brent crude oil futures. The Shanghai Oil and Gas Trading Center also continues to maintain its position as the largest natural gas in stock trading platform in Asia.
"Against the international experience of benchmarking, the construction of China's oil and gas trading and pricing center, the combination of term and cash is critical. The current global commodity pricing system, which relies mainly on futures markets, has made New York and London important global energy pricing centers, and these benchmark prices guide global oil and gas trade. The construction of my country's oil and gas trading center urgently needs to strengthen the linkage between the in stock market and the futures market, and jointly provide market participants with comprehensive services including resource allocation, trade financing, and risk management." Zhang Chunjun said.
(Source: China Energy Network)