Crude Oil Slump Disturbance Petrochemical Industry Chain Domestic "Floor Price Protection" Has Not Yet Been Triggered

In March 9th, the global crude oil market was in distress. As of press release, Brent oil prices and WTI oil prices fell more than 20%, the intraday decline of over 30%.

In March 6th, the eighth OPEC and non OPEC ministerial meetings were held in Vienna, which was rejected by all analysts and agencies. Russia rejected Saudi Arabia's proposal to continue to cut production. After the meeting, Russian energy minister Novak said that from April 1st onwards, all countries could decide their own production on an arbitrary basis.

Perhaps in order to retaliate for Russia, Saudi Arabia has sharply lowered the official price of crude oil exports in April. The price range has been as high as 5-8 US dollars / barrel for 20 years. Especially for the crude oil prices in the Asia Pacific region, the premium has been transferred from +2.9 US dollars / barrel to -3.1 US dollars / barrel, and the price adjustment has been 6 yuan, which is the highest in history.

In response to the huge fluctuations in the crude oil market, the Chinese Foreign Ministry responded in the evening of March 9th that China is a big importing and consuming country in the world, and we hope that the international energy market will remain stable. Under the influence of the epidemic, the parties have many predictions for the future of the world economy. At this time, the stability of the international energy market has a special significance.

China is the world's largest consumer and importer of crude oil and the sixth largest producer of crude oil. The price of crude oil is crucial to both energy security and related industrial chains. The price war will last for quite some time. "Generally speaking, lower oil prices will reduce China's energy and raw material costs, but for upstream companies, the pressure will be very large," said Wu Kang, general manager of the Asia Pacific analysis.

Price war is hard to end

"Many of the main buyers in the Asia Pacific region, including our company, have received notice from Saudi Arabia." An oil business person told reporters, "simply say two sentences, to have what, how much."

As for Russia, there has been no public price change as of press release, but Russian national oil company announced later in March 9th that its crude oil production will increase significantly.

In fact, for domestic oil companies, because of the different product lines of refineries, the varieties of crude oil needed are also different. At the same time, there is some complementarity between Saudi Arabia and Russia's crude oil at a certain level.

"It can not be said that which country has lower official price to choose which country thoroughly, the product lines of each refinery are different, and the emphasis of choice is also different." These people explained to reporters, "but judging from the current price, it is more valuable to consider importing Saudi Arabia."

As a result, the biggest shock is not Saudi Arabia or Russia, the two price war sponsors, but higher cost producers of crude oil such as Canada, Brazil and Norway: squeezing the high cost crude oil capacity from the market through lower cost advantages.

This is the final result of several oil price slump since 80s of last century: clearing high cost surplus capacity. However, this round is the only time in history that the price of oil, which overlay supply and price cuts and weak demand, has plunged. Oil prices are going to rebound, or a large number of oil producers will not be able to survive the financial crisis, or global demand will recover strongly after the new crown epidemic.

"For all oil producing countries, the price of US $30 / barrel, US $20 / barrel is not sustainable. The price war will eventually lead to a withdrawal." Wu Kang said, "at the same time, it depends on the extent to which the epidemic will be terminated and the demand for crude oil will recover."

In the second years of China's 7 years of increasing production and production, three barrels of oil rolled up its sleeves to prepare for its exploration and development in 2020, and global oil prices experienced a second day high single day decline.

"In this case, the biggest impact must be on the CNOOC market which is purely listed above, followed by China's oil business, which focuses more on the upstream." An institutional analyst told reporters that "China's oil companies have been very good at cutting costs, but they are still useless after the avalanche of oil prices."

On March 9th, A shares of China Petroleum (601857.SH) reported 5.15 yuan / share, down 0.96%, and the intraday loss increased by more than 5%. In terms of Hong Kong stocks, CNOOC led the energy sector to close at HK $9.79 / share, or 17.23%.

At the same time, the low crude oil prices will also impact the non fossil energy economy such as new energy, and the corresponding investment will also be affected.

When will floor price protection start?

In the last round of the oil price slump cycle, the national development and Reform Commission promulgated the "oil price management measures (Trial)", set the lower limit of product oil price regulation to be 40 US dollars per barrel, that is, when the domestic crude oil prices depend on the international market crude oil price lower than 40 dollars per barrel, the domestic refined oil prices will no longer be lowered.

This is also known as the "floor price protection" policy: under the influence of this regulation, oil, especially petrochemical enterprises, will be protected in the period of falling oil prices, and the gross profit of refining is far higher than that of international counterparts. In 2016, Sinopec annual net profit of 46 billion 400 million yuan, refining sector operating profit of 56 billion 300 million yuan, an increase of 168.5% over the same period last year, the world's largest oil company profits.

Behind such achievements, the "floor price protection" policy is indispensable. Therefore, under the premise that domestic protection policy has played a role, petrochemical enterprises have been on the same day in March 9th, of which Sinopec's Shanghai petrochemical company opened for half an hour, trading directly.

It is worth mentioning that in the above policy, the amount of unadjusted oil price is included in the risk reserve, and the establishment of special account storage is approved by the state. It is mainly used for energy saving and emission reduction, improving oil quality and ensuring the safety of oil supply.

"That is to say, the money earned because of the protection policy needs to be turned over to the state, and it is not included in the statement." The above sources told reporters, "but in the last round, this part of the money will eventually be displayed in the report, if the policy has been opened for a while, I wonder if I will pay the part of the money again."

However, in the next oil price adjustment window day (March 17th), the oil product "floor price protection" policy will probably not start.

According to LIAN's calculation, according to the closing price of US $41.28 / barrel on Friday (March 6th) WTI, the average price of comprehensive crude oil is 49.01 US dollars / barrel. If the average crude oil price falls below the floor price of 40 US dollars / barrel, the international crude oil will drop more than 9 US dollars / barrel.

The probability of continuous large decline in a short period of time is not high. If the recent international crude oil prices remain near $30 per barrel, the average crude oil price in March 17th will be around $41 / barrel, and the current retail price of gasoline and diesel will be reduced by around 1000 yuan / ton.

"If Saudi Arabia and Russia can not reach an agreement on price war in the short term, international oil prices will fall further. After entering the next round of valuation cycle, the floor price will be opened, and the retail price adjustment window will be closed in March 31st, which will be a big probability event." Jin Lian creates product oil analyst Wang Yanting, told reporters. (Editor: Zhang Xing)

?