Crude oil

The market will swing between the limit of storage capacity and the expectation of supply clearance. During the May Day holiday, oil prices rebounded strongly, and the monthly difference also followed. At the end of last month, the market was still worried about negative oil prices due to insufficient storage capacity. Why is there such a big reversal in the short-term market? First, the most direct view from the fund level, the recent net long positions of WTI crude oil funds have increased significantly. As of the end of last month, the net long positions of US oil funds (excluding options) increased to 280,000 lots, doubled from the beginning of April , This also shows that after many passive long products such as USO, crude oil ETF and index funds have reduced or moved positions from current month contracts, CTA has become the largest long position in crude oil in current month. From the data of fund positions, The substantial increase in net long positions came from the increase of long funds rather than the reduction of short positions. It is worth noting that the net multi-position increase of Brent crude oil is much smaller than that of WTI. From the perspective of price performance, the increase in Brent oil in the past two weeks is also much smaller than that of WTI. The cumulative increase in Brent oil in current month is about 20%, while the US oil has risen by nearly 40%, so the immediate driving force for the recent rise in oil prices comes from the CTA entering the market.

What is the logic of long positions of CTA? We believe that the demand side is not the dominant factor, mainly reflected in the following points: 1. The increase in US RBOB gasoline prices is less than that of crude oil, and from the perspective of fund positions, there is no significant increase in gasoline net long positions. If speculation demand recovers, the first choice should be finished products for oil instead of crude oil, we should see a rebound in the price difference between gasoline and diesel cracking, but the facts are now the opposite. With the recent rebound in crude oil, the recent refining profits of major global refining centers have continued to decline; 2. The number of new infections in the United States has not been significant Declining, restarting the economy and facing the risk of a second outbreak of the epidemic, and in non-OECD countries such as Russia and Latin America, the number of people affected by the epidemic is still increasing rapidly; 3. The stock of refined oil and the number of floating warehouses are still increasing rapidly and at the historical high level.

Compared with the speculation on demand side, we believe that the CTA speculation on decline in supply is more possible, especially the recent decline in crude oil production in Canada and the United States may exceed expectations. According to Rystad Energy’s estimates, Canada’s second-quarter production cut is expected to be 1.2 million barrels per day or more, accounting for one-third of the country’s total output. Recently, we have noticed that the discount of Canada’s flagship oil, WSC crude oil, to WTI in Cushing has narrowed to $5 per barrel, a rare historical level, and the normal discount level is above $10 to $15 per barrel, which means that production cuts have taken place, and the arbitrage window for Canada oil to Cushing oil has been closed. It is expected that the amount of Canada’s oil going south to Cushing will be greatly reduced in the future. Canadian pipeline company Enbridge said that it will store crude oil in pipelines from June 1, with a total volume of about 912,000 barrels, which also indicates that the amount of crude oil exported from Canada to the United States may be greatly reduced in the future, thus providing room for pipeline storage. From the perspective of production reduction logic, the reason why Canada has greatly reduced production is mainly because its crude oil operating cost (OPEX) is too high. Because the local oil sands require a series of complex processing processes such as extraction, dilution and quality improvement processing, so if the WCS price is lower than $15 per barrel, oil sands mining is not economical. Recently, even the SAGD project has appeared to heat the bottom oil sands, but there is no oil sands extraction, and producers can temporarily leave the oil sands underground, waiting for future oil prices to be suitable for exploitation. Although the operating cost of shale oil in the United States is lower than that of oil sands, Due to the substantial reduction in capital expenditures, the increase in production of new wells is less than that of old wells, which will lead to a decline in production. According to Rystad Energy’s estimates, from May to June this year, US crude oil production fell by at least 300,000 barrels per day. Therefore, in the North American crude oil market, the supply clearing logic caused by low oil prices has begun to gradually realize, we are likely to see that the stocks will decline rapidly by the time Cushing crude oil inventories reached the tank capacity limit. Compared with Brent oil, the US market may first open supply and demand rebalancing, but rebalancing of the Brent market is more complicated than that of US oil. In the short term, the logic of forced clearing of supply caused by low oil prices will gradually be realized. The market will swing between the logic of limit of storage capacity and the expectation of supply clearance, the key is that which logic is fulfilled faster. In the short term, it does not mean that the bottom of the price is reversed, but it will definitely bring dramatic price fluctuations.

In terms of futures operation, it is advised to maintain the neutral strategy; for the reverse cash and carry arbitrage strategy, it is advised to leave the market and wait and see.

Natural Rubber

Overseas rubber went down weakly during the holiday. The main force contract of TF07 fell by 2.9 or 2.61% to 108.4. The main force contract of JRU09 rose by 115 or 1.17% to 146.7. The SHFE rubber rebounded slightly before the holiday. The main force contract of RU09 rose by 115 or 1.17% and closed at 9,965, and the main force contract of NR06 rose by 55 or 0.69% and closed at 8,050. The quoted price for Qingdao rubber was scarce before the holiday. The quoted price of RSS3 was $1,400 per ton. The spot price or CIF of STR20 was $1,140 to $1,145 per ton. The CIF of SMR20 in August was $1,170 per ton. The CIF of mixed rubber from Thailand in August was $1,180 per ton.

Xinhua Beijing News: In order to stabilize and expand automobile consumption, 11 departments including the National Development and Reform Commission issued a notice recently, proposing adjustments to the implementation of the relevant requirements of the National Six Emission Standards, improving the financial and tax support policies related to the purchase of new energy vehicles, accelerating the elimination of scrapped old diesel trucks, stimulating smooth second-hand car circulation transactions and good use of automobile consumer finance.

It is the Constitution Memorial Day and Vesak Day in Thailand, Ge Song Moon Festival in Myanmar, and Buddha Auspicious Day in Cambodia today, and local markets are closed. According to data released by Zhuochuang. the operating rate of domestic all-steel production lines before the holiday was 59.7%, down 5.5% week-on-week and 19.9% year-on-year. The export is under pressure, and the weak matching and replacement market suppressed the operating rate. The online sales of semi-steel are acceptable, and the replacement market is slightly better than that of all-steel tires.

Futures Operation Advice: As for the main RU09 contract, it is advised to pay attention to the support at the previous low level at 9,740 per ton, and the evening session will resume.

(For reference only)