Be wary of large fluctuations in global oil prices.

The international crude oil market price hovered around $40 per barrel for quite a long time, which seems to be calm, but in fact it is undercurrent. Under the current situation, it is especially necessary to be alert to the large fluctuations of global oil prices. In the short term, oil demand is expected to pick up slowly; But in the long run, the global energy consumption structure is undergoing a fundamental change.

On October 28th, due to the significant increase of American commercial crude oil inventory and the rebound of COVID-19 epidemic in Europe, America and other factors, the international oil price dropped sharply by more than 5%. As of the close of the 28th, the futures price of light crude oil for December delivery in the New York Mercantile Exchange fell by 2.18 US dollars to close at 37.39 US dollars per barrel, a decrease of 5.51%. London Brent crude oil futures for December delivery fell 2.08 US dollars to close at 39.12 US dollars per barrel, down 5.05%.

Up to now, the international crude oil market price has been hovering around US$ 40 per barrel for quite a long time, which seems to be calm, but in fact it is undercurrent. Under the current situation, it is especially necessary to be alert to the large fluctuations of global oil prices.

Last week, the crude oil market price remained firm, stimulated by optimistic data and news. For example, the Organization of Petroleum Exporting Countries (OPEC) may extend the production reduction period of 10 million barrels to 2021. At the same time, the leaders of Saudi Arabia and Russia stressed the importance of OPEC's continuous cooperation in telephone calls. This is also an important reason for the stabilization of crude oil prices last week.

How to judge the change of global oil supply and demand and the price trend in the future? This requires comprehensive analysis of various complex factors, and the influence of the "black swan" incident should be considered. For example, the possibility that the price war of crude oil will start again cannot be completely ruled out.

In the short term, although the International Monetary Fund has raised its economic growth forecast this year, the oil demand is expected to pick up slowly, but most analysts expect that there is little room for oil prices to rise in the rest of this year. It is expected that there will be great fluctuations due to the US election in early November, but the possibility of another collapse is very small, unless the oil price war starts again. The Secretary-General of OPEC believes that huge uncertainties and risks will continue to affect the stability of the oil market before the effective COVID-19 vaccine is introduced.

At the meeting held on October 19th, OPEC emphasized the importance of abiding by the production restriction agreement, so the industry expects that the OPEC+production restriction agreement may be extended to January 2021. However, the number of oil drilling rigs in the United States has risen for the fourth consecutive week, currently 205, and shale oil production is also recovering. Coupled with the increasing daily output of Libyan oil, this may increase the market price pressure. However, the continuous decline of global commercial oil inventories is also a factor that influences OPEC's decision. According to the statistics of the U.S. Energy Administration (EIA), the current U.S. crude oil inventory is 489.1 million barrels, only 54.3 million barrels higher than that of a year ago, indicating that the oil demand in the U.S. market has picked up.

Will there be another price war in the oil market this year? This possibility cannot be completely ruled out. The continued weakness of the global oil market seems to be aggravating the tension between OPEC and non-OPEC oil producers, which may lead to the termination of the production reduction agreement. The two protagonists of the game, Saudi Arabia and Russia, are facing serious financial deficit problems, and both need to compete for enough market share to ensure cash flow.

The Saudi government's budget balance this year is based on the assumption of an average price of $50 per barrel. Due to the drop of oil price, the financial situation of Saudi government has deteriorated, and the ongoing Saudi Vision 2030 project is short of funds. At present, Saudi Aramco, as a global oil company, has shelved several major new projects and reassessed the investment level of other projects. At the same time, with the decrease of oil and natural gas exports, the Russian economy is also experiencing difficulties. Recently, the US dollar-denominated government bonds of Russia and Saudi Arabia have been sold off. If the capital market loses confidence in them more and more, I am afraid that trouble will really come.

In the long run, the global energy consumption structure is undergoing a fundamental change. In its routine monthly forecast, the International Energy Agency believes that the global oil demand will not return to the pre-epidemic level until at least 2022. Among them, the demand for aircraft fuel will not fully recover before 2023. By 2030, the oil demand will increase to 103 million barrels per day. But some analysts assert that demand will never return to its pre-epidemic level. Now, the whole international community has begun to adapt to the normalization of epidemic prevention and control, that is, reducing travel, social activities and even consumption. It can be said that this epidemic has changed people's production and living habits, and its far-reaching influence is still hard to see clearly.

Some pessimistic observers even think that there is actually no way out for oil and the prospect is bleak. Although this statement is exaggerated, it is also forward-looking. Europe has firmly embarked on the green road of renewable energy and electric vehicles. Looking ahead, the electrification of automobiles will undoubtedly reduce the future oil demand.

Research shows that in economic history, a 10% increase in GDP will correspondingly generate a 5% increase in fossil fuel consumption. The long-term consumption demand trend of petroleum and other forms of fossil fuels indicates that this industry is experiencing a long-term recession. Since 1970s, due to the energy crisis and geopolitical tensions, the price of oil has risen sharply. As a result, energy consumption lags behind economic activities, and the economy has changed from commodity production requiring a large amount of energy input to product and service production relying on knowledge. From 2000 to 2019, the global GDP increased by 70%, the energy consumption increased by 46%, and the oil demand increased by only 29%. The trend of energy consumption per unit GDP continued to decrease obviously, and the energy consumption pattern and structure continued to change.

Looking ahead, the pursuit of green development and the application of new energy will be unstoppable. The fossil fuels dominated by coal and oil will eventually be replaced by renewable energy. But before that, there are many stories to tell about oil. (Economic Daily-China Economic Net)