After falling to a five-year low in the first quarter of this year (New York futures fell to $43.57), oil is expected to stabilize in the second quarter. In fact, after hitting a low in January, oil prices mainly remained at the low level of recent years and fluctuated from February to April (New York futures mainly fluctuated between $44 and $54), without further decline. This is worth noting because, while the objective environment has not changed much, the strong US dollar and the negative news of the preliminary agreement reached in the Iran nuclear negotiations have led to a continuous rebound in oil prices. This may indicate that oil prices have found significant support at the $40 level and have a chance to stabilize in the second quarter.
Oil demand is stronger than expected
The demand for oil is stronger than expected. From June 2014 to January this year, oil prices have fallen by over 60%, although they have since rebounded slightly and are currently only about half of the same period last year. However, the significant drop in oil prices has stimulated the usage rate of cars and also led factories and other enterprises to expand energy consumption. London based consulting firm EnergyAspects predicts that global oil demand will grow by up to 1.5 million barrels per day this year, which is twice the growth rate of oil demand expected by the International Energy Agency (IEA) last year. The unexpected rebound in global oil demand is highly likely to be driven by demand from the United States, China, and emerging Asian markets. Although the economic growth rate of the United States has slowed down since the fourth quarter of last year, the demand for oil has not significantly decreased as a result. At the same time, although emerging markets and China have also experienced a slowdown in growth, the market's prospects for China and emerging markets have improved after the introduction of loose monetary policies and economic stimulus policies. At the same time, the revival of asset markets may also improve the future economy. Therefore, the demand for oil did not experience the significant decline expected last year. This is an important stabilizing factor for oil prices.
The agreement reached in Iran's nuclear negotiations may not significantly increase oil supply; The agreement reached in Iran's nuclear negotiations may not significantly increase oil supply. Although Iran has reached a preliminary nuclear negotiation agreement with six countries, the final agreement in June is still pending implementation. However, according to Fatih Birol, Chief Economist of the International Energy Agency (IEA), even if Iran reaches a final nuclear agreement with the six major powers, its crude oil production will not increase significantly in the next three to five years. On the contrary, the possibility of a significant decrease in supply in other regions is increasing. The IEA estimates that due to lower prices, oil companies may reduce their investments in crude oil exploration and production by up to $100 billion in 2015. Birol believes that lifting sanctions on Iran would have limited impact on global oil prices, as Western sanctions have halved Iran's oil exports from 2.5 million barrels per day before 2012 to around 1.1 million barrels per day. The loss of oil revenue makes it difficult for the country to invest in new development projects and pay for equipment and services to ensure smooth production.
The rebound of commodity futures price index supports the stabilization of oil prices
The rebound of commodity futures price index (CRB) supports the stabilization of oil prices. Although oil is an important component of the CRB index, there are differences in its trends, which is an important signal indicating the direction of future oil prices. When oil prices fell to 43.57 in the week of January 26 this year, the CRB index also fell to a low of 211.27. However, when the CRB index fell to a new low of 206.81 in the week of March 16, New York futures did not break through the January low. In this way, the CRB index began to rebound, and oil prices also began to rise from $44 to the level of $50. This obvious divergence phenomenon usually occurs when oil prices are at significant highs and lows. This also implies that there is significant support for oil prices at the $44 level, and there is a high possibility of further stabilization in the future. New York futures may rebound to nearly $60 in May.
Responsible Editor: Zhang Di
