Crude Oil Falls Now, And Hedge Risk Depends On This Move.

Since the beginning of 2019, international crude oil prices have experienced a trend of rising. Among them, NYMEX WTI crude oil futures active contract 1907 contract in December 24, 2018 hit bottom (44.2 U.S. dollars / barrel), in April 2019 23 days hit a high point of 66.44 U.S. dollars / barrel, the biggest increase was once 50.3%, to June 3, 2019 to 52.86 U. S. dollars / barrel, compared with the previous high point dropped 20.4%. ICE Brunt crude oil futures active contract 1908 contract bottomed out in December 26, 2018 (51.43 US dollars / barrel), set a high of 74.04 US dollars / barrel on April 2019 25, the biggest increase also reached 44%, and dropped to 60.9 US dollars / barrel in June 3, 2019, down 17.7% compared with the previous high.

Since May, there has been a fall in the global crude oil prices. I believe there are both factors of supply and demand and political factors. From the supply side, although the OPEC (OPEC) is still implementing the production reduction agreement, there has been no significant gap in the global crude oil supply. Instead, there has been a stock accumulation, which is mainly due to the increase in non OPEC production and the increase in shale oil production and exports in the United States to make up for the supply gap resulting from the reduction of OPEC production.

On the supply side, Reuters survey showed that the OPEC5 months from 14 member countries fell to 30 million 170 thousand barrels / day, down 60 thousand barrels from April, the lowest output since 2015. Although Saudi Arabia raised production under the pressure of President Trump to lower oil prices, Saudi Arabia still voluntarily controlled oil production below the level stipulated in the earlier OPEC supply agreement. Since the US sanctions against Iran in May 2018, Iran's crude oil output has fallen by 30%.

According to data released by the Russian Ministry of energy, Russia's oil output in May dropped from 11 million 230 thousand barrels in April to 11 million 110 thousand barrels, the lowest level since June 2018. Russia's oil pipeline exports in May dropped from 4 million 494 thousand barrels a day to 4 million 209 thousand barrels in April, as oil supplies from the druba pipeline nearly dried up, while seaborne exports jumped 11.5%.

Geopolitical clashes also led to market worries about supply. Since the beginning of the April, the war in Libya has continued to warm up, and the rebels loyal to the rebel general Khalifa? Ha pat have launched a surprise attack on the UN recognized government of Libya. Because of US sanctions against Iran, Iran crude oil exports continued to decline. According to shipping data and oil industry information, crude oil in Iran dropped sharply in May. IEA said that Iran's oil production has dropped to its lowest level since September 2013, and the oil production in May may fall further to the lowest level since the Iran Iraq war in 80s.

More importantly, however, the increase in crude oil production in the United States and Canada, especially the increase in US crude oil output and exports, to some extent, has destroyed the effect of OPEC production reduction, making the supply and demand of the global crude oil market unable to balance. According to the latest data from the US Energy Information Administration (EIA), the average daily output of crude oil in the United States has reached 12 million 300 thousand barrels, becoming the world's largest oil producer. Other statistics show that since 2017, Venezuela crude oil exports have dropped by about 1 million barrels per day, and in 2018, under the new US sanctions, crude oil exports in Iran dropped by about 1 million 300 thousand barrels per day, while the US crude oil exports in 2017 have almost filled the gap of 2 million 300 thousand barrels / day.

From inventory, data released by the US Energy Information Administration (EIA) showed that in the week ending May 24th, the United States removed 476 million 500 thousand barrels of commercial crude oil from its strategic reserve, although it was slightly down by 300 thousand barrels compared with May 17th, but it is still near the highest level since July 28, 2017. According to common sense, if the global crude oil production is declining, the US crude oil inventory will decline, because the United States will solve the stock pressure through crude oil export, but in fact, the US crude oil export is increasing, but the stock continues to rise, which means that the global crude oil market is oversupplied.

Statistics show that since January 5, 2007, the US crude oil commercial inventories and NYMEX WTI crude oil futures (CL) closing price show -0.7 correlation. Therefore, the increase trend of US crude oil commercial inventories is not reversed, and the decline of international crude oil prices is difficult to stop.

The picture shows us commercial crude oil inventories and NYMEX WTI crude oil futures closing price.

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From the perspective of demand, the global economic growth prospects are worrying because of the global trade friction spreading from the United States to the United States and Mexico, the United States and India. The International Monetary Fund (IMF) released a report that the trade tensions between China and the United States had a negative impact on consumers and many producers in both countries, and that the increase in trade barriers would disrupt the global supply chain and affect the speed of the spread of new technologies, leading to a decline in global productivity. Although China's crude oil imports reached a record high of 43 million 730 thousand tons in April, the demand for domestic refined oil is weak, which means that the increase in imports is mainly due to reserves. It is not driven by actual demand. In the future, the demand for Asian crude oil imports, including China, will cool down, especially as the export oriented Korea of Asia, and exports in the first 20 days of May will drop by 11%.

From the perspective of the more favorable factors for the rise of crude oil prices, the main reason is that the situation in Iran is out of control, and Libya and other oil producing countries have sharply reduced production due to geopolitical conflicts, resulting in a supply gap that is unable to compensate for the increase in shale oil output in the United States. From a strategic point of view, investors can sell crude oil futures to hedge the downside risks of spot prices, such as selling NYMEX WTI crude oil futures contract (CL) of Chicago and Shanghai crude oil futures contract, and buying NYMEX WTI futures option for preventing oil price rebound.