Crude oil

The production cuts are eventful, and the oil market may maintain high volatility. Last week, oil prices rebounded strongly. Saudi Arabia held a temporary OPEC+ meeting to discuss production cuts. The market's expectations for OPEC's re-cutting of production have risen again, but the latest information shows that OPEC still has many contradictions internally, mainly on the benchmark of production cuts. Russia currently advocates production cuts based on the average production in the first quarter and Saudi Arabia advocates the reduction of production based on the output in April. Due to internal discord, the meeting which was to be held on Monday was postponed to the 9th, and oil prices fell again on Monday. Judging from the motivation of this production reduction meeting, the reason why Saudi Arabia and Russia can return to the negotiating table is mainly due to the following reasons: 1. Demand fell more than expected. Under the pressure of infrastructure such as tank capacity and pipelines, crude oil is difficult to sell. If production is not reduced, the global tank capacity will be exhausted in the future, and oil-producing countries will have to passively reduce production on a large scale. At present, the production reduction is implemented to get more time for oil-producing countries such as Saudi Arabia to slow down the accumulation of crude oil and wait for the coronavirus epidemic. After the subsided demand picks up, it is time to change space by time; 2. Political pressure from the United States. The fall in oil prices has caused severe damage to the US oil industry. The United States and Saudi Arabia still belong to political allies. Saudi Arabia must respond to the appeal of allies, and The Russian side also hopes that the reduction in production will also be exchanged for the relaxation of US sanctions on Russia; 3. It is reported that after the OPEC meeting was held on the 9th, the energy ministers of the G20 countries will then hold a meeting to discuss a greater reduction in output, so if an agreement can be reached , More countries will participate in the production cut, especially if the United States can join the production cut, Saudi Arabia and Russia’s worry for market share will be greatly reduced. However, we believe that there is still great uncertainty in the current "epic-level" production cut, mainly reflected in: 1. Whether the United States will participate in this production cut. According to Trump’s talks with oil industry executives last Friday, the American Petroleum Institute and ExxonMobil-based major oil companies are opposed to the United States' cut in production, but the American Petroleum Institute also said that due to low oil prices, US crude oil production may fall by 25% to 30%, and the Texas Railway Commission has also recently cooperated with Saudi Arabia. The mediation between Russia and the United States is still possible to participate in the production reduction, but it is most likely to wrap the passive production reduction on the coat of active production reduction; 2. Regarding the production reduction benchmark, this is also the core of the current differences between Russia and Saudi Arabia. The reduction of Saudi Arabia is based on 12.3 million barrels per day or based on 9.8 million barrels per day, which means a difference of nearly 2.5 million barrels per day. From the perspective of Saudi Arabia, this price war means its competition for market share, and if the production cut is based on 9.8 million barrels per day, it will erode Saudi Arabia’s market share. For Russia, more production cuts mean that it has a larger market share. There is a market share dispute, and the recent political differences between Putin and Riyadh have also increased, resulting in this agreement still full of uncertainty. But overall, the current output reduction of 10 million barrels per day is definitely not as large as the decline in oil demand. According to institutional estimates, the year-on-year decline in demand in April was about 30 million barrels per day, so this part of the output reduction cannot balance supply and demand, it can only slow down the accumulation of oil, and time is to change for space, waiting for the recovery of demand after the future epidemic. For oil prices, we believe that the short-term market is dominated by the expectations of the production reduction meeting, showing a high volatility state, and After the dust of the production reduction meeting is settled, it will return to fundamentals. We believe that supply is still not the focus, and whether the demand can bottom out is the key point. In terms of futures operation, it is advised to maintain the short strategy; reverse cash and carry arbitrage strategy to long the back-month contract and short the near-month contract is recommended for Brent oil. Guard against risks that epidemic was under control and OPEC reopens agreement to cut output.

Natural Rubber

Overseas rubber went up slightly. The main force contract of TF06 rose by 0.8 or 0.74% to 108.0. The main force contract of JRU09 rose by 2.6 or 1.80% to 146.9. The SHFE rubber retreated before the festival. The main force contract of RU09 fell by 75 or 0.77% and closed at 9,670, and the main force contract of NR05 fell by 40 or 0.52% and closed at 7,665. The quoted price for Qingdao rubber in USD retreated slightly with limited inquiries. The quoted price of RSS3 was $1,420 per ton. The spot price or CIF of STR20 was $1,080 to $1,085 per ton. The CIF of SMR20 in August was $1,120 per ton. The CIF of mixed rubber from Thailand in August was $1,130 per ton.

Xinhua News: At present, the meteorological drought has covered about half of the area in Yunnan Province, of which the drought in central and southern Yunnan and southwestern Yunnan is obviously heavy. Recently, under the influence of sunny, hot, rainy and windy weather, the forest fire danger meteorological grade in central and western Yunnan will maintain a high level of danger and is prone to forest fires; the forest fire danger meteorological grade in eastern Lijiang has reached a very high danger level, and forest fires are extremely prone to occur. There are meteorological droughts in about half of the stations in Yunnan Province. Among them, there are moderate to severe meteorological droughts in southwestern Yunnan, and some areas have severe and extremely droughts, which mainly occur in Puer City and Xishuangbanna Dai Autonomous Prefecture. According to satellite remote sensing monitoring, there were 183,500 square kilometers of drought in Yunnan Province in mid-March, of which the area of severe drought was 106,400 square kilometers. The drought conditions in central and southern Yunnan and southwestern Yunnan were significantly heavier.

As of March, the NINO 3.4 index closed at +0.5°C, a year-on-year increase of 5.1%, which was the same as last month, and the weak El Niño continued. As of April 3, the subtotal inventory of SHFE RU closed at 240,000 tons and futures inventory closed at 237,000 tons, and the difference between the two was only 3,000 tons, and the net growth rate of warehouse receipts was almost stagnant.

Futures Operation Advice: In terms of the main RU09 contract, it is advised to hold the long position in the short term and set a stop at the previous low level at 9,580 below.

(For reference only)