Crude oil: Extremely cold weather affects U.S. production, and oil prices hit a new high this year
the Spring Festival, oil prices remained strong. Both unilateral prices and monthly differences reached new highs during the year. News and data that have a greater impact during the Spring Festival include: 1. Affected by severe cold weather, U.S. crude oil production has dropped by nearly 30%, about 3.5 million barrels per day, while production in the Permian Basin, the main tight oil producing area, has dropped by as much as 65%, mainly due to the low temperature that prevents hydraulic fracturing operation, the market is expected to resume normal US crude oil production in one week, which will have a positive impact on oil prices, but it is short-term. In addition, some US Gulf refineries and terminals have also suffered production interruptions due to the temperature. 2. Russia’s crude oil and condensate production in the first half of February averaged 10.11 million barrels/day, 44,000 barrels/day lower than in January. The output was lower than OPEC+’s new year’s production quota ceiling. Russia’s production increase was less than expected and was also affected by cold weather which has a positive influence on oil price. 3. According to news from North American Warehousing Company, as global crude oil inventories continue to decline and market demand for oil storage continues to decline, some long-term lease customers have begun to stop renewing leases, mainly in the U.S. Gulf region. It is expected that the Cushing region will also have a similar situation, which implies that global crude oil inventories may decline at an accelerated rate, and the impact is more favorable. 4. The US Department of Energy plans to sell 10 million barrels of crude oil in the SPR inventory from April to May this year. The impact is negative, but the magnitude is small and the impact is limited, and it has little impact on the current market. 5. In its February report, OPEC revised the call on OPEC for the whole year of 2021 by 340,000 barrels per day. OPEC stated that if OPEC and non-OPEC members do not increase supply, global inventories will drop sharply. OPEC+ will be held on March 4. A meeting was held today to discuss whether to resume supply. The Iraqi Oil Minister said that OPEC is unlikely to change the current production restriction policy, but Saudi Arabia’s voluntary production cut of 1 million barrels per day will begin to resume in April.
Overall, we believe that the logic of rising oil prices has not changed, and it is still the mismatch between supply and demand caused by OPEC+’s current conservative production increase policy. Although the current demand recovery is slow, supply is also limited, so the future oil market will still be relatively strong. We believe that the current factors that will break the pattern of rising oil prices mainly come from: 1. OPEC will increase production significantly, and the possibility is low, especially after the completion of the spring inspection of global refineries in April this year. 2. Iranian oil will return to the market quickly. It should be the story of the second half of this year. Although Iran has begun to increase production this year, its impact on the market before the sanctions is lifted is limited; 3. Demand collapses again unless the virus mutates again and the vaccine is ineffective, otherwise, the demand will not be worse than the previous one, but it can only be better. The repeat of last year is basically minimal. Therefore, in summary, we believe that oil prices are likely to rise above US$65/barrel in the short term. We will test OPEC/Saudi’s upper limit on oil prices. If OPEC's production policy does not undergo major adjustments, it is expected that the crude oil long position pattern will remain.
Strategy: Be cautions, arbitrage opportunity on Brent or WTI
Risk: Iranian oil returns to the market ahead of schedule (For reference only)
The price of iron ore futures increased, the position on I2105 contract closed at ¥1071.5 per ton, the spread of Iron 5-9 contract is 121. In terms of spot, the PB powder in Rizhao Port was ¥1,122 per ton, the discounted SSF price was ¥1163 per ton.
1. Mysteel: During the period from February 8th to February 14th, the total iron ore inventory of the seven major ports in Australia and Brazil was 13.5230 million tons, an increase of 341,000 tons from last week (an increase of 2.5%). The total inventory was restored to the same level in the last year.
2. Mysteel: On February 16, Primer Group stated that it had completed the construction of the concentrator for the Christmas Creek iron ore project under FMG. The concentrator adopts high-intensity wet magnetic separation, which is expected to improve the grade of its iron ore products and increase the recovery rate of the sand removal device in the second processing equipment.
3. Mysteel: BHP Billiton announced a record US$5.1 billion interim dividend. Due to the soaring iron ore prices, BHP’s semi-annual profit reached a 7-year high. The company’s shareholders will receive a dividend of US$1.01 per share, higher than the previous year’s $0.65 per share.
4. Mysteel: On February 15th, Beijing time, Australia’s Mount Ridley Mining Company stated that it has started geological sampling for its Weld Range iron ore project, and is ready for drilling later this year.
5. Mysteel: On February 15th, Fenix Resources of Australia stated that due to a problem with the relevant machinery of the bulk carrier Ya Tai 2, which caused the ship to leak oil at the Port of Geraldton and it could not return to normal in a short time, its first shipments of iron ore will be forced to suspend.
1. During the Spring Festival period, the spot market basically had no transactions and was in a stage of no activities in the market, but the external disk performance was strong, which may have a certain impact on the price of iron ore; due to the low arrival of the port and the influence of weather factors, the unloading volume of iron ore at the port did not significantly increased, the port volume dropped significantly during this period, and the overall port inventory increased slightly. During the Spring Festival, some blast furnaces resumed production, mainly in Hebei, while the rest of the region remained stable. During the holiday period, there were almost no steel mills making purchase plans, and only some steel mill directors received the goods. The total inventory days of steel mills average about 23 days, and the inventory of port steel mills is about 10 days. Some steel mills have replenishment requirements one week after the holiday, and the replenishment plan is expected to be completed before the end of the month. With the gradual release of the blast furnace production before the holiday, the average daily molten iron output is expected to increase by about 10,000 tons compared with that before the holiday, and the blast furnace capacity utilization rate may also increase slightly. The accumulation of downstream building materials inventory is expected, but the amount inventory is still high. After the holiday, we need to pay attention to the time and intensity of the return of terminal demand. It is suggested to hold the long position on iron ore.
2. Arbitrage: Opportunity on Iron ore 5/9 (for reference only)
PTA: Crude oil continued to rise during the festive period, and PTA continued to increase.
TA in February accelerates the seasonal accumulation of inventory, and TA processing fees are expected to be decreased; however, the de-stocking of PX in February increased, and the increase in PX processing fees is more flexible than the decreasing of TA processing fees . In terms of the unilateral strategy, it is advised to be cautious, arbitrage opportunity is not yet ready. For the risk, Terminal resumption progress after the holiday, the seasonal overhaul of polyester and the sustainability of gasoline premium on the supply and demand
Rubber: Demand expectations are still strong, and prices fluctuate strongly
During the Spring Festival holiday, due to the increased market atmosphere and good expectations of future overseas demand recovery, the external market of Japanese rubber rose significantly, and domestic and foreign funds remained loose. Under the tight supply, crude oil prices also showed a continuous upward trend. Prices also play an indirect support role. The total inventory of domestic exchanges as of February 10 was 174,746 tons (0), and the amount of futures warehouse receipts was 167,940 tons (0). As the Spring Festival holiday approached, port logistics was stagnant, bringing inventory and warehouse receipts before the holiday to remain unchanged. Domestic production has been completely stopped, and overseas rubber tapping has also entered the off-season, and overall warehouse receipts have limited increase. As of February 7, inventory in Qingdao Free Trade Zone has rebounded slightly, mainly due to the Spring Festival holiday, showing a trend of seasonal accumulation.
The week before the holiday, the domestic spot market prices showed a trend of first rising and then falling, but the overall change was little compared with the previous week. According to Zhuo Chuang's understanding, as the Spring Festival holiday is approaching, downstream terminal factories have been on holidays one after another, logistics and transportation have been suspended, spot transactions have basically stalled, market orders have been deserted, and the overall situation is showing that there is no market for prices. From the perspective of supply in the production areas, the main producing countries have entered a low-yield period, and the release of new rubber has decreased; while the superimposed domestic demand performance is poor, the price is difficult to show a unilateral trend. The spot market price of U.S. dollar latex in Qingdao Free Trade Zone rose slightly. However, due to the suspension of work and holidays in the downstream and the gradual suspension of logistics, the overall trading volume was light, with sporadic monthly changes. The focus of the external market price rose slightly. At present, the northeastern part of Thailand has been completely shut down, and the southern production areas have gradually entered a low-yield period. At the end of February, it basically entered a rest period, and global supply has entered a downturn. Under the influence of this, the raw material purchase price continued The increase, coupled with the overall strengthening of the domestic commodity market driven by the external macro atmosphere on the domestic futures disk, the support for US dollar cargo has risen, but due to the current Chinese market terminals are basically closed for holidays and lack of rigid support, the price rise is slightly weak. As of last weekend, the premium of rubber synthetic rubber was 1,550 yuan/ton (+200). The price of rubber rebounded slightly last week, bringing the spread again. In terms of downstream tire operating rate, as of February 5, the operating rate of all-steel tire companies was 51.67% (-15.14%), and the operating rate of semi-steel tire companies was 56.01% (-8.2%). One week before the Spring Festival holiday, the tire factory has been on holiday one after another, and the operating rate continues to decline, and will rise again after the Spring Festival.
Strategy: Be cautious
Risks: The increase in supply brought about a sharp rebound in inventories, the epidemic and other impacts, demand continued to weaken, and funds were tight.
LME copper prices closed at $8413/ton, an increase of 1.66% and increased 1500 lots.
1. Last Thursday, the Speaker of the U.S. House of Representatives, Pelosi, said that lawmakers will complete the legislation on President Biden’s $1.9 trillion anti-epidemic relief bill by the end of February. Pelosi predicts that this bill will become law before supplementary unemployment benefits expire in mid-March. According to details released by Democrats in the House of Representatives, the bill will extend an additional unemployment benefit of $400 a week to August 29, and will also provide $1,400 per person to most families without lowering the income threshold.
2. Vaccination in the United States continues to accelerate. At present, the United States has received 52.88 million doses of vaccine, of which 38.29 million have received at least one dose, and 14.08 million have been vaccinated. The current daily vaccination rate in the United States has reached 1.67 million doses. If the daily vaccination rate can be increased to 2 million doses, then the 70% population coverage target can be achieved around the end of the second quarter.
1. The macro atmosphere during the Spring Festival is good for the capital market. On the one hand, it comes from the market's expectations of the 1.9 trillion stimulus policy. On the other hand, the US vaccination is speeding up. The global stock market is on the rise as a whole, and the market is optimistic. Optimism is spreading in the short term, and copper prices may still show an upward trend.
2. Arbitrage: There will be some problems when importing copper to the port from January to February. The Chilean terminal is affected by waves and the container capacity is suppressed by the epidemic and the spot is still tight. The epidemic in Malaysia has worsened and the import of recycled copper is also facing tightening. The seasonal accumulation in the first quarter of this year may not be as good as in previous years, and it is not recommended to consider monthly reverse arbitrage. After consumption resumes after the Spring Festival, arbitrage can be considered.
3.Options: Hold the current positions. (For reference only)