The International Energy Agency (IEA) announced on June 23 that it will release 2 million barrels of oil every day for the next 30 days. This move surprised the market. The International Energy Agency was established in 1974 and consists of 28 oil-importing Organization of Economic Co-operation and Development (OECD) member countries, aiming to compete with OPEC. The decision was made to fill the gap in the reduction of Libya's high-quality, light, low* crude oil exports.
Political Motivation This is the third time in the history of the International Energy Agency to announce the release of a strategic crude oil reserve. The first two occasions started the emergency response mechanism in 1991 when the Gulf War broke out and in 2005, the United States "Katrina" hurricane. The decision was contrary to many industry insiders; Brent crude oil prices fell more than 7%, the lowest fell to 104 US dollars per barrel, while West Texas Intermediate (WTI) crude oil remained an unusually large discount, mainly due to Canada's huge supply Decline, there was a technical supply of crude oil delivered by Kush (Oct. WTI crude oil pricing site) in Oklahoma. However, the above two crude oil price indicators subsequently rebounded and recovered their losses.
However, the IEA's decision was seen as a precedent for alleged interference in oil supply and demand through political forces. The United States took the lead in releasing reserve oil and used the “Special Oil Reserve†(SPR) to bear half of the release. Japan, Germany, France, Spain, and Italy will jointly bear the other half of the release.
Before the announcement of the above announcement by the International Energy Agency, despite pressure from the increase in oil production, OPEC members met on June 8 to discuss how to increase output quotas but failed to reach an agreement, which is contrary to the expectations of many in the industry. Iran and Venezuela prevented Saudi Arabia from officially raising its output. The International Energy Agency called for OPEC to increase oil production on May 19.
It is alleged that filling the gap caused by the 1.5 million barrels of crude oil per day in Libya is the reason for this release of oil reserves, and the IEA also expects that crude oil demand will increase in the second half of the year. However, the timing of the decision to release oil reserves was a bit embarrassing: three months after the outbreak of the Libyan war. This move was interpreted as a contest between the International Energy Agency and OPEC - after OPEC failed to reach an increase in oil production, it opposes its dominant position in the oil market. In addition, political factors also exert their power. High oil prices have become a major worry for the Obama administration. Therefore, the IEA's actions are considered a political motive.
Oil price Changni In fact, oil prices rebounded steadily after the IEA announced its decision to release oil reserves and regain lost ground. This shows that the fundamental factor of supply and demand is the ultimate force to promote the market. All fundamental factors indicate that the future oil price will hit record highs. Over the past decade, the relative scarcity of oil coupled with strong demand in emerging markets has been the main structural force driving oil prices. The rapid economic growth in China and other emerging markets has pushed up the demand for limited natural resources such as oil, leading to a change in the oversupply of oil. The reason why the price of commodities such as oil soared may at least be attributed to the structural rise in commodity prices instead of the cyclical rise.
The basic transformation of the oil industry is obvious: from the "exploration period" of resources to the "investment period." Proven, easy-to-manufacture reserves (achievements that are readily available) are gradually being exhausted, and the refining rate is continuing to decline. In order to meet the world's growing demand (mainly from the needs of emerging markets), it is necessary to implement expensive new projects to obtain oil reserves that were difficult to extract before. The limited supply of oil and rising costs of oil extraction in increasingly difficult areas will dominate the future of the oil market.
In the future, oil prices will depend to a large extent on the unit cost of extraction for each additional barrel of oil. In other words, the "marginal cost" of oil production is rising dramatically. In the Middle East oilfield with obvious advantages, the production cost of oil is very low, only 20 US dollars per barrel. However, the cost of extracting petroleum from oil sands in Canada or deepening oil from Nigeria is very high, and the price per barrel is estimated to be between $70 and $100. In the long run, oil prices will move closer to their marginal costs. If oil prices fall, producers can only reduce exploration and production investment to avoid losses.
At the current oil price level (more than $100 per barrel), large oil companies will invest the necessary capital into new projects; if oil prices fall, these projects cannot be commercialized. It is worth noting that it takes a long time to start production and generate benefits in relatively harsh oil fields, but the large-scale production projects of oil companies in these fields are still under implementation, indicating that the management of the oil industry is also very optimistic about the long-term development prospects of oil prices. .
The use of strategic reserves for political purposes is the first of its kind. However, the intervention in suppressing oil prices seems to have ended in failure. The oil market is still affected by the fundamentals of supply and demand, and the long-term bull market of oil prices is solid. The rebound in oil prices after the announcement of the decision by the International Energy Agency increased the market’s confidence in the oil bull market.
In this context, investors may consider adding physical assets that can combat inflation, such as oil exploration and production that will benefit from the oil price bull market pattern. Another oil-related industry that has benefited from the bull market outlook is oil equipment, which is particularly sensitive to rising oil prices and increasing investment in the oil industry. In addition, the oil drilling equipment contracting industry will also benefit from the large-scale capital expenditures of the oil industry. (This article is provided by Fidelity**)
Political Motivation This is the third time in the history of the International Energy Agency to announce the release of a strategic crude oil reserve. The first two occasions started the emergency response mechanism in 1991 when the Gulf War broke out and in 2005, the United States "Katrina" hurricane. The decision was contrary to many industry insiders; Brent crude oil prices fell more than 7%, the lowest fell to 104 US dollars per barrel, while West Texas Intermediate (WTI) crude oil remained an unusually large discount, mainly due to Canada's huge supply Decline, there was a technical supply of crude oil delivered by Kush (Oct. WTI crude oil pricing site) in Oklahoma. However, the above two crude oil price indicators subsequently rebounded and recovered their losses.
However, the IEA's decision was seen as a precedent for alleged interference in oil supply and demand through political forces. The United States took the lead in releasing reserve oil and used the “Special Oil Reserve†(SPR) to bear half of the release. Japan, Germany, France, Spain, and Italy will jointly bear the other half of the release.
Before the announcement of the above announcement by the International Energy Agency, despite pressure from the increase in oil production, OPEC members met on June 8 to discuss how to increase output quotas but failed to reach an agreement, which is contrary to the expectations of many in the industry. Iran and Venezuela prevented Saudi Arabia from officially raising its output. The International Energy Agency called for OPEC to increase oil production on May 19.
It is alleged that filling the gap caused by the 1.5 million barrels of crude oil per day in Libya is the reason for this release of oil reserves, and the IEA also expects that crude oil demand will increase in the second half of the year. However, the timing of the decision to release oil reserves was a bit embarrassing: three months after the outbreak of the Libyan war. This move was interpreted as a contest between the International Energy Agency and OPEC - after OPEC failed to reach an increase in oil production, it opposes its dominant position in the oil market. In addition, political factors also exert their power. High oil prices have become a major worry for the Obama administration. Therefore, the IEA's actions are considered a political motive.
Oil price Changni In fact, oil prices rebounded steadily after the IEA announced its decision to release oil reserves and regain lost ground. This shows that the fundamental factor of supply and demand is the ultimate force to promote the market. All fundamental factors indicate that the future oil price will hit record highs. Over the past decade, the relative scarcity of oil coupled with strong demand in emerging markets has been the main structural force driving oil prices. The rapid economic growth in China and other emerging markets has pushed up the demand for limited natural resources such as oil, leading to a change in the oversupply of oil. The reason why the price of commodities such as oil soared may at least be attributed to the structural rise in commodity prices instead of the cyclical rise.
The basic transformation of the oil industry is obvious: from the "exploration period" of resources to the "investment period." Proven, easy-to-manufacture reserves (achievements that are readily available) are gradually being exhausted, and the refining rate is continuing to decline. In order to meet the world's growing demand (mainly from the needs of emerging markets), it is necessary to implement expensive new projects to obtain oil reserves that were difficult to extract before. The limited supply of oil and rising costs of oil extraction in increasingly difficult areas will dominate the future of the oil market.
In the future, oil prices will depend to a large extent on the unit cost of extraction for each additional barrel of oil. In other words, the "marginal cost" of oil production is rising dramatically. In the Middle East oilfield with obvious advantages, the production cost of oil is very low, only 20 US dollars per barrel. However, the cost of extracting petroleum from oil sands in Canada or deepening oil from Nigeria is very high, and the price per barrel is estimated to be between $70 and $100. In the long run, oil prices will move closer to their marginal costs. If oil prices fall, producers can only reduce exploration and production investment to avoid losses.
At the current oil price level (more than $100 per barrel), large oil companies will invest the necessary capital into new projects; if oil prices fall, these projects cannot be commercialized. It is worth noting that it takes a long time to start production and generate benefits in relatively harsh oil fields, but the large-scale production projects of oil companies in these fields are still under implementation, indicating that the management of the oil industry is also very optimistic about the long-term development prospects of oil prices. .
The use of strategic reserves for political purposes is the first of its kind. However, the intervention in suppressing oil prices seems to have ended in failure. The oil market is still affected by the fundamentals of supply and demand, and the long-term bull market of oil prices is solid. The rebound in oil prices after the announcement of the decision by the International Energy Agency increased the market’s confidence in the oil bull market.
In this context, investors may consider adding physical assets that can combat inflation, such as oil exploration and production that will benefit from the oil price bull market pattern. Another oil-related industry that has benefited from the bull market outlook is oil equipment, which is particularly sensitive to rising oil prices and increasing investment in the oil industry. In addition, the oil drilling equipment contracting industry will also benefit from the large-scale capital expenditures of the oil industry. (This article is provided by Fidelity**)
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