六大图表实力剖析——价格战还在继续，油价将走向何处？

In the oil patch, the price drums are being banged. Everyone has their hand cupped to their ear trying to decipher the message. Higher prices! Higher prices! That’s what everyone is hearing. Those drums started beating that message rapidly more than a week ago when global oil prices fell to a five-month low. As oil prices started crashing, the price action was explained by traders, speculators and hedgers who were increasingly doubting the resolve of oil exporters, principally OPEC and its non-OPEC supporters, who had agreed to cut their output by a combined 1.8 million barrels a day. As this lack of conviction grew that exporters, by cutting their output, would be able to drive down global oil inventories thus allowing world oil prices to climb, crude oil prices fell.

Recently, when it appeared oil prices might fall to $40 a barrel or possibly even lower, the fear factor drove the OPEC producers most impacted by lower global oil prices to react. The key players in the world oil market – OPEC, Saudi Arabia and Russia began beating the drum to send the message that they would do what was necessary in order to drive oil prices higher.

The need for this drum beat became so important that it required two of the world’s three largest oil producers, whose economies are significantly dependent on oil prices, to appear together in an effort to talk up the oil price. Before the rebound in oil prices that followed the joint presentation, concern was that the oil production cut agreement was failing to rebalance the global oil market. In fact, even as oil prices crossed above the $50 a barrel mark, they still remained nearly $2 a barrel below where they started the year. That was certainly not what OPEC, Saudi Arabia, Russia or the other non-OPEC exporters were counting on when they agreed to limiting or reducing their oil output last November.

The low oil price in early May, as shown in Exhibit 1, was below the prior low established in March when market concerns focused on whether OPEC members were complying with the production cut agreement. What oil exporters wanted to see was a return to where oil prices traded during the first two months of 2017, closer to the mid-$50s a barrel.

What is impacting oil prices this year is more than just expectations about the pace of the market rebalancing. On that point, the May Monthly Oil Report (MOR) from the International Energy Agency (IEA) concluded, “It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market.” It further pointed out that while the oil market rebalancing is “accelerating,” and inventory volumes are being drawn down, in order to reach the five-year average inventory levels that OPEC is targeting, “much work remains to be done in the second half of 2017.” That observation, consistent with the view of OPEC in its May monthly oil market report, put great pressure on Saudi Arabia and Russia to lead the OPEC/non-OPEC combine in getting to an agreement to extend the production cuts if they wished global oil prices to rise to the $60 a barrel target.

Part of the challenge for OPEC and its partners is overcoming the other market forces that are influencing oil prices, both positively and negatively. For example, what is happening with the value of the U.S. dollar has an impact on the price of commodities, especially oil. There is also the pressure on oil prices that comes from the actions of speculators who trade options on future oil prices. Those pressures can either help boost oil prices or act to depress the efforts to raise them.

Traditionally, movements in the value of the U.S. dollar against other currencies impact the prices of commodities that are traded globally. When the value of the dollar falls, it makes crude oil, which is traded worldwide in U.S. dollars, cheaper in foreign currencies and stimulates global oil demand. Likewise, when the dollar’s value increases, foreign buyers find oil more expensive, limiting demand. That pattern has been observed over long periods of oil history.

As shown in Exhibit 2, since 1973, it is easy to see extended periods when the U.S. dollar was weak and correspondingly, oil prices rose. In particular, note what happened to the value of the dollar during the 1980s and first half of the 1990s. As the dollar’s value fell during that period, oil prices rose slightly. A reason why oil prices didn’t increase more during that time is largely explained by the huge expansion of oil output globally in response to the explosion in oil prices during the 1970s following the Arab oil embargo of 1973/74 and the loss of oil supplies due to the Iranian revolution in 1979. The resulting global economic recession and increase in world oil supplies combined to limit the magnitude of improvement in oil prices.

If we look at the weakness in the dollar value during 2002-2011, we see that oil prices exploded, rising well above $100 a barrel for a significant portion of that time. Those years coincided with the commodity super-cycle when global demand for all commodities seemed to explode, driven by the rapid economic growth of China and India, along with concerns about the ability of the industries to bring sufficient new supplies to market to meet projected future demand. Now, however, it seems that this strong correlation between changes in the value of the U.S. dollar and oil prices has weakened.

Exhibit 3 shows the oil price and the value of the U.S. dollar so far this year. During the first two months of 2017, oil prices rose while the dollar’s value fell initially, but then rose. During March, the oil price fell as did the value of the dollar, the opposite of what would have been expected. This new relationship has continued through April and May. Does it mean this relationship is no longer working? Theoretically, it should still work, but the breakdown of the correlation suggests other factors are having a more powerful impact on oil prices than just changes in the value of the U.S. dollar.

One of the more powerful forces impacting crude oil prices this year has been speculators and oil traders. These are people who are trading futures contracts in expectation of changes in future oil prices, either up or down. One of the patterns that has proven quite accurate over the past seven years has been the tendency for speculators to build peak oil holdings just as oil prices reach a peak before declining. Examining Exhibit 4 (prior page) and the chart’s red arrows showing when oil prices fell compared to the level of oil futures holdings demonstrates this correlation. One would suggest that these traders and speculators have done a very good job in maximizing their trading activity – selling their holdings just as oil prices fell. What may be missed to some degree is what influence the traders and speculators had on oil prices, as they built their positions.

So far in 2017, these traders and speculators have built the largest holdings ever seen. That phenomenon reflects both the high level of optimism traders and speculators had/have for higher oil prices. So far, that bet has not been as successful as the amount of capital they have wagered would imply. When we look at what has happened with speculators’ long oil futures holdings and oil prices since the Saudi Arabia decision to abandon supporting OPEC oil prices in late 2014, we see how, early in 2015, speculators anticipated an oil price recovery and built their long futures holdings. Oil prices did rebound, but couldn’t sustain the higher level and began falling almost steadily until the February 2016 oil price low was established. During that decline, speculators slowly built their long holdings, thus benefitting from the February to May 2016 oil price rise. From then until November 2016, the changes in speculator long holdings mirrored the pattern of oil prices. Starting in November and continuing through December, holdings grew as oil prices rose. Early in 2017, speculators began aggressively adding to their futures holdings, but the oil price increase stopped and then prices went sideways before falling, which came immediately after the speculators started unwinding their positions.

speculators’ short holdings as shown in Exhibit 6. It was partially in response to this shift in sentiment among speculators and traders that motivated Saudi Arabia and Russia to jointly announce their pledge to work for a nine-month extension of the current oil production cut agreement when OPEC met May 25th. A decision that was the outcome of the meeting.

It has taken an incredible amount of effort by OPEC and non-OPEC exporters to push oil prices from the $47 a barrel range back above $50. These exporters have talked about working to get all the exporters to agree to the nine-month extension and possibly to increase the size of the oil production cut from what they have been undertaking. The IEA’s comments about the rebalancing of the oil market in the first quarter of 2017, despite the need for additional work, combined with the sixth weekly draw in closely-watched U.S. crude oil inventories and the first decline in estimated U.S. oil production also helped improve oil pricing sentiment. What is important to contemplate is that it took all of these efforts to stop the erosion in oil prices and boost them back above $50, still quite a ways below where Saudi Arabia, Russia and OPEC want them to be. For Saudi Arabia, getting oil prices to $60 a barrel by early 2018 is important for the success of their planned IPO of Saudi Aramco. Does the current oil price action suggest there are structural issues at work within the global oil market that people are not either paying attention to, or do not comprehend? Time will tell.