The recent sharp fluctuations in crude oil prices

The recent sharp drop in oil prices, which we believe is mainly due to market expectations that the Federal Reserve will extend the end of interest rate hikes and the duration of restrictive interest rates, coupled with the recurring domestic epidemic, has put a relatively big squeeze on international crude oil prices.

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On Monday, the market rumors that OPEC will increase production by 500,000 barrels per day, oil prices plunged by $5 after the announcement, then Saudi Arabia disproved the rumors and oil prices quickly recovered the lost ground. This belongs to the Black Swan event, which is unexpected. The current oil price is still within a reasonable range overall, although it shows a sharp decline in the short term.

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The logic behind the recent sharp fluctuations in crude oil

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The main logic of market trading is still the trade-off between the decline in economic growth in the context of Fed rate hikes, repeated domestic epidemics vs. the lack of spare capacity under OPEC control, and the risk premium from the Russia-Ukraine conflict.

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We believe that the current oil prices are still trading around the main logic. On the one hand, the current U.S. CPI is still at a high level, and the Fed's rate hike is still a major trend and brings a cascade of global monetary tightening reactions. Global economic expectations remain pessimistic, with repeated domestic outbreaks and lower demand for crude oil consumption, inhibiting oil price increases.

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?On the other hand, the global crude oil investment is chronically insufficient, and the current surplus capacity is mainly concentrated in the hands of Saudi Arabia, UAE and Iraq. The Iranian nuclear agreement is on hold, U.S. shale oil investment is lower than expected, Europe and the United States sanctions against Russia, in addition to OPEC global crude oil is difficult to have marginal incremental supply, in addition to the U.S. strategic reserves will soon be released, if it continues to release then the U.S. strategic reserves will be on the verge of safety line, if stop releasing will reduce the production supply of 800-1 million barrels per day. At the same time, EU sanctions against Russia are about to take effect, and Russian crude oil exports are at risk of further contraction. Overall, the current long and short pressure are relatively large, crude oil in 75-105 are reasonable levels.

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Crude oil market after market trend outlook

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After Monday's V-shaped rebound, oil prices have a short-term technical rebound trend, while the price is also approaching the lower boundary, as long as the general logic has not changed, oil prices will still have a short-term drive to strengthen. After the market oil prices are still in a wide range of oscillations, large fluctuations will still be the norm.