From April 20 to 21, the first China New Energy (Methanol) Intelligent Industry Conference was held in Beijing. The information conveyed at the meeting shows that methanol as raw material and power fuel will have important practical significance in accelerating the upgrading of traditional industries, realizing energy diversification and green low-carbon development in terms of macro-policy and micro-industry development. It marks that the big ship of “methanol economy” is sailing in an all-round way.

According to the statistics of Methanol Age Alliance, China’s methanol production capacity reached 90 million tons in 2018, accounting for 60% of the world’s total production capacity; domestic demand for methanol was 73.85 million tons, and China has become the world’s largest producer and consumer of methanol. In this regard, Jin Yong, academician of the Chinese Academy of Engineering and professor of Tsinghua University, said that as a chemical raw material, methanol can not only produce “triene”, “triphenyl”, “formaldehyde” and dimethyl ether, but also be used as hydrogen storage material, which has a wide range of uses. As a power fuel, methanol has not only guaranteed resources, but also good environmental protection performance. In use, due to full combustion, CO and hydrocarbons in exhaust gas are reduced by 55%~90%, energy conversion efficiency is high, CO2 emissions are low, and the cost of methanol as a vehicle fuel is relatively low. The key point is that the technology has matured, and methanol-powered passenger cars have been used in methanol vapor in Shanxi, Guizhou, Shaanxi and other provinces. Vehicle pilot cities have been put into operation with good results.

It is understood that one month ago, the Ministry of Industry and Information Technology, the National Development and Reform Commission and other eight ministries jointly issued the Guidance Opinions on the Development of Methanol Automobile Applications in Some Areas. The Guiding Opinions pointed out that in order to promote the transformation and upgrading of traditional industries, accelerate energy diversification and meet the requirements of clean new energy vehicles development, M100 methanol vehicles will be accelerated in Jin, Shanxi, Guizhou and Gansu provinces, undoubtedly injecting new vitality into the next development of methanol vehicle fuel and providing favorable policy guarantees.

“This is the most distinctive position given by eight ministries and commissions on methanol as a new energy source, and the best result of the industry’s efforts for more than 30 years.” Jiang Lianbao, Deputy Secretary-General of the National Technical Committee for Alcohol and Ether Fuel Standardization, told reporters.

In his speech, Zhang Yousheng, deputy director of the Energy Institute of the National Development and Reform Commission, stressed that, firstly, accelerating the application of methanol automobiles is of great significance, which is crucial for ensuring energy security, promoting the upgrading of traditional industries and fostering new economic growth points; secondly, the development of methanol automobiles is consistent with the implementation of the concept of green development, and its popularization and application will certainly promote the development of green cycle and low carbon in China; thirdly, the promotion of methanol Auto The application of motor methanol automobiles should be gradual and not rush to the top.To further study the health impact of methanol automobile exhaust, we should gradually improve the supporting service system, accelerate the construction of methanol Automobile standard system, and ensure that the emission of methanol automobile meets the standard throughout the life cycle.

It is understood that the meeting also held the Ganzhou Methanol Intelligent Industrial Park Launching Ceremony and the signing ceremony of related enterprises. The Industrial Park has invested more than 10 billion yuan in new energy and new energy automobile industry, which has become the most powerful response to the “Guidance” of 8 ministries and commissions and the promotion of downstream methanol application.

Titanium is less than 57% of iron, but it has the characteristics of high strength, high temperature resistance and corrosion resistance. It is called “marine metal” and “space metal” and so on. It is an important and supporting material for advanced national defense equipment and important projects of national economy. On April 15, the 17th National Symposium on Titanium and Titanium Alloys was opened in Ningxia, sponsored by China Nonferrous Metals Society and sponsored by Nanjing University of Technology.

With the theme of “innovation, development and application”, this conference has conducted extensive and in-depth exchanges and discussions on the latest development, research hotspots and development priorities of titanium science and technology in recent years in China, attracting more than 70 units from China Nonferrous Metals Society, Nanjing University of Technology, Baoti Group, Northwest Nonferrous Metals Academy and China Shipbuilding Heavy Industry Group to engage in titanium and titanium. Six academicians and more than 530 experts and scholars have studied alloy metallurgy, materials, manufacturing, aerospace, marine engineering, petrochemical, biomedical and other related application fields.

“In recent years, titanium alloys and industry in China have made great progress. They have been widely used in chemical industry, aviation, aerospace, warships, nuclear power, biomedical and other fields. They are key materials for improving equipment performance, important supporting materials for modern national defense construction and indispensable important materials for national economic development.” Academician Zhou Lian, part-time professor and honorary chairman of the conference of Nanjing University of Technology, said that even in the field of daily necessities, titanium is often seen, including high-end cooking utensils, mobile phones, luxury goods and so on.

“In 2018, the output of titanium alloy in China was 60,000 tons, accounting for 0.006% of steel, but the price was 16.9 times that of steel. Low yield and high unit price are serious problems in the application of titanium and titanium alloys. Professor Chang Hui, Vice-Dean of Material College of Nanjing University of Technology, believes that reducing the cost of titanium alloy materials by more than 50%, increasing the utilization rate of titanium alloy materials to more than 90%, increasing the amount of titanium alloy by 5-10 times, reaching 300-600,000 tons/year is the goal of the next 5-10 years.

Crude oil has performed particularly well in this round of commodity rallies. Since late December 2018, Brent crude oil futures main contracts have increased by more than 50%. In the same period, domestic energy futures followed closely, while A-share petroleum and petrochemical sector performed slightly worse. Analysts said that short-term geographic factors will reduce crude oil supply, shale oil investment will reduce this year’s growth rate of shale oil production, if OPEC production reduction can be maintained, future oil prices are expected to continue to rise, which may boost relevant stocks.

Weak and weak

Since the rebound of international crude oil futures in late December 2018, it has embarked on a unilateral upward journey. According to Wenhua financial and economic data, as of April 25, Brent crude oil futures contracts reached a maximum of $75.59 per barrel, up 50.52% from the low of $50.22 per barrel on December 26, 2018, and the largest increase in NYMEX crude oil contracts was 57.22% over the same period.

Domestic energy futures followed closely. Since the low in late December last year, the main contract ranges of domestic crude oil, fuel oil and asphalt futures have increased by 40.81%, 33.16% and 44.92% respectively.

In contrast, in the A-share market, the increase of Petrochemical Index is not ideal. Wind data show that the Petrochemical Index (CITIC) has rebounded from its low on January 3, reaching a stage high on April 8, with a maximum range of 31.57%. Since then, it has maintained a shaky adjustment, closing on April 25, with a cumulative increase of 21.83% since the low, while the Shanghai Composite Index has risen 25.26% since this year.

Yang Owen, an energy industry analyst at Chuancai Securities, said that Brent and NYMEX crude oil prices have been rising recently, driven by the decline in EIA crude oil inventories and the decline in the number of drilling rigs in the United States. In addition, Schlumberger judged in his quarterly report that investment in exploration and development in North America would decline by 10% in 2019 due to rising investment costs and slowing technological progress, which was confirmed by several declines in drilling rigs in North America this year.

Oil prices still have upward momentum

As the top of the energy industry chain, the price of crude oil affects the whole body. Usually, rising oil prices will lead to higher prices of base oil, additives, logistics and transportation costs in downstream related industries.

Wind data show that among the constituent stocks in China Petrochemical Index (CITIC), international industry has increased the most since this year, reaching 156.16%, which is the only stock in the plate that has more than doubled its growth rate; Intercontinental Oil and Gas, Satellite Petrochemical, Maohua Shihua, Tianke, Tongkun, Petrochemical Oil Suit, Xinchao Energy and Sanhongpu have maintained their growth rates in the range of 90% to 50%.

According to Yang Owen, Schlumberger judged in his quarterly report that North American exploration and development investment would fall by 10% in 2019 due to rising investment costs and slowing technological progress, which was confirmed by several declines in drilling rigs in North America this year.

“If oil prices rise in the later period, shale oil increment will also be affected by the above two reasons. The growth rate of production may lag behind that of previous years. In addition, the deadline for the US exemption from Iranian energy exports is approaching, and India has suspended its order for Iranian crude oil in May. It is expected that other exempted countries and regions may also experience this phenomenon. Short-term geographic factors will reduce crude oil supply, shale oil investment will reduce this year’s shale oil production growth rate, if OPEC production reduction can be maintained, oil prices will be affected by many factors rise. Yang Owen said.

In addition to fundamentals, Li Yanjie, chief analyst of energy and chemical industry at CITIC Construction Investment Futures, said that domestic industrial value added and fixed asset investment growth had rebounded, and the recovery of the economy was also good for commodities. Overall, the macro and oil market fundamentals are good, and short-term oil prices are expected to remain strong.

U.S. Secretary of State Pompeo announced Tuesday that “all Iranian oil buyers will stop importing from May 3, otherwise they will be subject to U.S. sanctions”. The market was frightened by media warnings ahead of time, and global oil prices surged more than 3% on Monday, reaching their highest level in nearly six months. The U.S. government has imposed 25 rounds of sanctions against Iran over the past two years, targeting nearly 1,000 individuals and entities. “Trump has become the biggest influencing factor in the global oil market,” Lin Boqiang, Dean of China Energy Policy Research Institute of Xiamen University, told the Global Times on the 22nd that if the United States really tries to reduce Iranian oil exports to zero, the blow to the Iranian economy can be described as “catastrophic”. Earlier, Iranian President Ruhani and military generals had threatened to block the Strait of Hormuz if Iran could not sell oil. Geng Shuang, spokesman for China’s Foreign Ministry, said at a regular press conference on the matter on the 22nd that China has consistently opposed the implementation of unilateral sanctions and so-called “long arm jurisdiction” by the United States. China’s cooperation with Iran is open, transparent, reasonable and legitimate, and should be respected. The Chinese government is committed to safeguarding the legitimate rights and interests of its enterprises and is willing to play an active and constructive role in promoting the stability of the international energy market.

On the morning of the 22nd, the White House said in a statement that Trump had decided not to reissue the exemption clause when it expired in early May. “The Trump Administration and our allies are determined to maintain and expand the greatest economic pressure on Iran in order to put an end to the political authority threatening the United States, our partners and allies and destabilizing activities in the Middle East.” The news immediately raised concerns about the oil market, with crude oil futures up 3.2% to $74.30 a barrel.

Later, at a news conference, Pompeo said that the goal of the United States is to achieve “zero export” of Iranian oil. How long this zero export policy will last depends entirely on Iranian leaders.

U.S. President Trump then tweeted that Saudi Arabia and other OPEC members would “make up” for the lack of oil supply caused by sanctions against Iran. Saudi Arabia’s energy minister also said on Monday that the country would coordinate with oil producers to ensure adequate supply for consumers and unbalanced global oil markets.

The Trump administration resumed sanctions against Iran after withdrawing from the Iranian nuclear agreement signed in 2015 last May. Last November, the United States granted six-month exemptions to eight economies (China, India, Japan, South Korea, Turkey, Italy, Greece and Taiwan, China) for importing Iranian oil, allowing them to find alternative channels for importing oil. Since November last year, Italy, Greece and Taiwan, China, have completely stopped importing oil from Iran, but five other economies have continued to import oil, while calling on the United States to extend exemptions. It is unclear whether these economies will be subject to U.S. sanctions if they do not immediately stop importing oil from Iran on May 3, or whether some of them will be given a buffer period to gradually reduce imports.

According to the Financial Times, this is only the latest step by the United States to increase pressure on Iran. Earlier this month, for the first time, the United States formally identified the Iranian Islamic Revolutionary Guard as a “terrorist organization”. Iran announced on the 21st that Salami will succeed Jafari as commander of Iran’s Islamic Revolutionary Guard, wondering whether it is related to the U.S. sanctions.

Reuters reported in Singapore on April 22 that oil prices rose early Monday, with Brent crude oil futures reaching their highest level since November last year, driven by a decline in U.S. drilling activity and continued OPEC production cuts.

At 00:28 GMT, Brent crude oil futures reached a high of $72.58 a barrel, up 0.8% from its last close in November 2018.

West Texas Intermediate Crude Oil (WTI) futures were trading at $64.55 a barrel, up 0.9% from the previous settlement price.

Stephen Innes, head of trading at SPI Asset Management, said, “The path with the least resistance is still high (oil prices are rising), pointing out that the tight market is caused by the decline in Saudi Arabia’s supply, the decline in the number of American drilling wells and the disruption of Libya’s supply to Venezuela.

In its weekly report Thursday, General Electric’s Baker Hughes Energy Services said U.S. energy companies last week reduced the number of oil rigs by two to 825.

Outside the United States, the Organization of Petroleum Exporting Countries (OPEC) has been taking the lead in reducing oil supply since the beginning of this year in order to tighten the global oil market and boost crude oil prices.

Brent crude oil prices rose by more than a third in 2019, while West Texas intermediate crude oil prices rose by more than 40% over the same period.

Since late March, good news such as the commissioning of 600,000 tons/year MTO plant in Inner Mongolia, spring overhaul and phased replenishment of some downstream enterprises in Jiutai have been gradually exhausted. In addition, the MA market has continued to weaken, and the mentality of some operators has turned weak. In the absence of obvious positive factors, the market rally temporarily came to an end. From last Friday to now, southern Shandong has fallen 110 yuan/ton, northern Shandong 90 yuan/ton, Shanxi 80 yuan/ton, Taicang 50 yuan/ton and Guanzhong Shaanxi 110 yuan/ton.

We believe that the market downturn is reasonable. In recent years, the policy of supply-side reform and environmental safety inspection has been implemented step by step. The utilization rate of methanol and related enterprises has been effectively improved. The regional supply and demand structure has been gradually optimized. Industrial profits have been allocated reasonably in stages. The first quarter is mostly the profit cycle of upstream enterprises, while the profits of upstream enterprises have gradually returned in the second quarter, and the profit space of downstream enterprises has gradually increased. At present, industrial profits are shifting downstream. In the first quarter of this year, the profit margins of upstream enterprises are more than 100-700 yuan/ton, while downstream enterprises are only 10-600 yuan/ton. But since April, upstream profits have shrunk, ranging from 50-150 yuan/ton. Downstream profits are gradually rising. The methanol industry is carrying out reasonable “macro-control”, which conforms to the “natural law” of many years.

Is the market really “horrible”? Is short-selling really risky? We believe that this is not the case.

It is noteworthy that both the outside and the inland arbitrage windows are closed at present. Although it is known that Queen I is ready to ship from the Middle East to China, it is expected to arrive in about 25-30 days, and the port inventory has been reduced for three consecutive weeks. Assuming that no sudden factors occur in the short term, China’s market will enter the stage of regional consumption. At that time, the supply of goods in Western China will be outsourced or restricted, and the price will be expected to decline. Supply in the central and eastern regions is tightening and the market is rising until arbitrage is reopened and prices stop falling and rebound.

In the main production area of Northwest China, it is reported that 600,000 tons/year MTO plant in Jiutai Inner Mongolia is scheduled to resume from the end of April to the beginning of May, and its supporting 1 million tons/year methanol plant products will stop exporting. In addition, there is also the expectation of local and surrounding sources of goods, and supply in the Northwest is tightening again. Bohai Rim Transit Zone: Dalian Hengli’s new 820,000 tons/year MTBE plant is expected to be put into operation by the end of April. Although the preliminary plan is to start half-load temporarily, it is conducive to diluting methanol supply around the Bohai Rim and even forming favorable support for Northern Jiangsu and other areas. In addition, Luxi Group plans to build 300,000 tons/year MTO plant in April-May, and its 800,000 tons/year methanol plant products will be fully self-used, benefiting Shandong, Shanxi, Hebei and Northern Jiangsu. In East China, it is reported that Nanjing Chengzhi’s new 600,000 tons/year MTO plant is scheduled to be put into operation at the end of the second quarter, which will further increase the demand for methanol at the port, stimulate the circulation of cargo sources in Guanzhong, Shaanxi Province, and thus boost the market.

If the above benefits are superimposed, it does not exclude the possibility of boosting the mindset of most businesses. Of course, there are certain risks in the market, such as the restart of repair facilities such as New Austria, the increase of import sources such as Iran, and the one-month environmental protection inspection in Shandong Province, etc. Even including macro-weak adjustment, the linkage effect of chemical products and the expected return of crude oil. Therefore, we believe that from late April to early May, China’s methanol market does not rule out the possibility of a wave of rebound, followed by a downward slide.

Price Trend

According to the data from the business associations’list, the overall domestic price of xylene remained around 5762 yuan/ton this week, with no obvious fluctuation.

II. Analytical Review

1. Upstream: For international crude oil, this week’s overall high oil price shocks, the average value continues to rise, oil prices are rising steadily, spot Brent 70.87-71.185 US dollars per barrel. The crude oil market remained at a high level and the xylene market was also at a high standstill.

2. The reference price of FOB Korean xylene is also stable, ranging from $721 to $726 per ton. This week, Sinopec’s Xylene listing price remained stable and unchanged.

3. Downstream: Xylene port stocks rose, East China stocks in about 128,000 tons. The supply side of the market remained stable, while the downstream demand was not good, so the volume was limited and the market trend of xylene was deadlocked.

3. Future Market Forecast

The Xylene Analyst of Business Society Chemical Branch thinks that in the near future, the Xylene plant of large factories has entered the overhaul period one after another, the output has decreased slightly, the international crude oil level has shocked, and the overall situation is relatively ideal; the Xylene market is deadlocked, although market participants have limited confidence in the future market, they do not look short, and it is expected that the price of Xylene will remain stable in the near future.

As crude oil prices rose to their highest level in nearly five months, Russia issued a “brake” signal to OPEC that it might consider increasing production after the expiration of the cut-off agreement in June 2019. According to Bloomberg, on April 9, Russian President Vladimir Putin said that although Russia will continue to cooperate with OPEC members, whether Russia will continue to reduce production after June this year will depend on market conditions.

No intention to fight “crude oil price war” with the United States

According to Reuters, Russian official Kirill Dmitriev said at a meeting on April 8 that the current decline in crude oil inventories may lead Russia to propose an increase in production at a meeting with OPEC members in June this year to stimulate market vitality.

“Russia and OPEC together to reduce production is to stabilize the market, for this purpose, production reduction, increase are our choice. Now the price of crude oil has stabilized and the stock of crude oil has declined. Now we have seen the possibility of increasing production after June. Even if production is increased, it does not mean the end of Russia’s cooperation with OPEC, but a reasonable continuation on the current basis. Kirill Dmitriev told Reuters in an interview.

Kirill Dmitriev, chief executive of RDIF, Russia’s sovereign wealth fund, has been an important supporter of OPEC+’s crude oil reduction agreement since 2016. In recent months, he also publicly expressed support for Saudi Arabia’s demand for production cuts, saying it was still too early to discuss stopping the cuts.

However, Russia’s attitude changed after crude oil prices rose above the $70 mark and said it was appropriate for Russia to reach that level. According to the Moscow Times, Kirill Dmitriev said in January that Russia should not wage a “crude oil price war” with the United States, but that it would still abide by the “OPEC+” cut-off agreement in the short term.

In fact, in the past year, Russian oil executives have repeatedly pressed supporters such as Russian Energy Minister Alexander Nowak to stop production cuts. Igor Sechin, a senior executive at Rosneft, a Russian oil company, has said that if Russia continues to cut production, it will cede its share of the global crude oil market to the United States.

Increased market uncertainty

In the face of Russia’s attitude change, the market reacted quickly. On April 9, crude oil prices fell slightly. Brent crude oil prices fell from $71.34 per barrel last week to $70.61 per barrel. WTI crude oil also fell from $64.79 to $63.98 per barrel.

According to the latest data released by market research institutes, “OPEC+” crude oil production in March this year has dropped 534,000 barrels per day to 3,000,000 barrels per day, and since the end of 2018, the price of Brent crude oil has risen by more than 30%.

In the face of price fluctuations, OPEC members such as Saudi Arabia and the United Arab Emirates have said they will not stop cutting production. On April 10, in response to Russia’s proposal, Emirates Energy Minister Mazrui said that Russia still needed to comply with the cut-off agreement and would not easily increase production without consultation with OPEC countries. “According to the agreement, in March, Russia, Iraq and other countries have expanded their output cuts to a certain extent, and the market may reach a balance between supply and demand by the end of 2019.

At the same time, there are also news that Saudi Arabia will maintain a large-scale production reduction, which reached 324,000 barrels per day in March, and its crude oil production has reached the expectations of its energy minister, Khalid Falkh, and dropped to less than 10 million barrels per day, slightly below 9.8 million barrels per day.

In Russia’s view, the reason why it began to consider increasing production is that uncertainties in the crude oil market are increasing. According to Bloomberg News, Putin said on April 9 that uncertainties in the crude oil market are increasing. Before making a final decision, Russia should take into account the needs of local oil and gas companies. Political turmoil in Venezuela, Iran and Libya, members of OPEC, is also a measure.

It is understood that Libya, which is confronted by two major political forces in the East and west, has again erupted violent clashes in the past week. The oil-rich southern region is under the control of military forces in the East this year. On April 9, NOC, Libya’s state-owned oil company, pointed out that the safety of the oil field is still being determined and that crude oil production may be affected. Meanwhile, sanctions imposed by the United States on Iran and Venezuela have not yet eased, which has also exacerbated the tense situation in the global crude oil market.

Putin said: “We believe that investment will come only in the case of continuous production, otherwise there will be a global energy crisis. In the future, Russia will pay close attention to the crude oil market with OPEC’s main allies, Saudi Arabia and Persian Gulf allies.

Oil prices rose 1% on Tuesday amid concerns about global supply constraints caused by the Libyan civil war, declining exports from Venezuela and Iran, but uncertainty about OPEC-led production cuts has limited oil price increases.

Brent crude oil futures closed up $0.54, or 0.76%, at $71.72 a barrel. U.S. crude oil futures rose $0.65, or 1%, to close at $64.05 a barrel.

In Libya, fighting between the Haftar-led Libyan National Army and the internationally recognized government has increased the likelihood of a decline in the country’s supply. Libya is a member of OPEC.

U.S. sanctions against Iran and Venezuela, the other two OPEC members, have led to a reduction in oil exports. According to tanker data and industry sources, Iran’s crude oil exports in April have fallen to the lowest level since then.

“Global supply is falling faster than people think. The imbalance between supply and demand in the market, “said Phil Flynn, an analyst at Price Futures Group.” The continued decline in Venezuela’s oil supply will have an impact, and OPEC production cuts will also play a role.

However, downward pressure has increased on Russia’s willingness to stick to OPEC-led production cuts and expectations of increased inventories in the United States.

Oil prices have risen by more than 30% this year, driven by agreements between OPEC and other oil producers, including Russia. The organization has been cutting production since January 1 and will decide in June whether to continue cutting production.

An official from Russian natural gas giant Gazprom said Tuesday that the global oil agreement signed by OPEC and its allies is expected to end in the first half of this year.

U.S. crude oil stocks are expected to increase by 1.7 million barrels last week, the fourth consecutive week of increase, also putting pressure on oil prices. Nevertheless, gasoline stocks have declined for nine consecutive weeks, with refining rates of less than 90% of total capacity since early February due to seasonal maintenance.

Weakening Supply and Geopolitical Warming

A Macroscopic Factor: Global Economic Growth Expectations are Downgraded Again, Money Tends to Ease

Global economic growth expectations were further downgraded. In the World Economic Outlook in April this year, the IMF again lowered its expectations for global economic growth. The IMF expects that the global economy will grow by 3.3% in 2019 and 3.6% in 2020. The growth rate in 2019 is 0.2 percentage points lower than that in January 2019, and the expectations for 2020 remain unchanged.

The upside-down of U.S. Treasury yields has once again raised economic concerns in the United States. In late March, the US treasury bond yields of March and 10-year maturities were upside down, and the short-term treasury bond yields were contrary to the long-term treasury bond yields. This is the first time since 2007. There is a “correlation” between the upside-down of treasury bond yields and economic recession, but there is no inevitable “causal relationship”. The upside-down of US tream bond yields does not necessarily mean that the US economy In addition, the “pigeon” signal of the Federal Reserve’s latest interest rate meeting is clear, suggesting that interest rates will not be raised this year, and that the contraction will end in September. In the context of the decline in US economic growth, monetary liquidity will gradually ease. In addition, according to the IMF’s forecast, GDP growth in the United States will fall to 2.3% this year, but the IMF raised its GDP growth forecast for 2020 by 0.1% to 1.9%.

The European economy is declining. EU forecasts show that the EU’s overall economic growth is expected to fall from 1.9% to 1.5% this year, from 1.8% to 1.7% next year, and from 1.3% to 1.6% this year and next year, respectively. Meanwhile, at the ECB’s monetary policy meeting in March, it adjusted the time point for interest rate hikes, saying that it would not raise interest rates until the end of 2019, which ended in the summer of 2019.

Global liquidity tends to be loose. This year, influenced by the downturn in global economic growth, the monetary policy of the multinational central banks has been easing. The United States will end the interest rate increase and contraction ahead of schedule. The European Central Bank will postpone the time point of interest rate increase. Some emerging economies have joined in the interest rate reduction tide, and the global monetary liquidity has generally tended to be relaxed. This means that the current global economic situation really worries countries and has to implement some measures in the monetary field. Measures to support the economy.

B Supply: Global supply continues to shrink and U.S. crude oil supply growth slows down

OPEC output continued to decline

OPEC’s major oil-producing countries are actively reducing production. As of March this year, OPEC crude oil production has dropped to 3.02 million barrels per day, a new low in the past four years. The implementation of production reduction in major oil producing countries has led to a significant decline in OPEC crude oil production. According to the implementation of production reduction in oil-producing countries, the implementation rate of production reduction in January, February and March this year reached 89%, 103% and 154%, respectively. Saudi Arabia and Kuwait, the major oil-producing countries, maintained a high implementation rate of production reduction. In addition, OPEC and non-OPEC oil-producing countries cancelled the April meeting and will meet in June to decide whether to extend the cut-off agreement. As Iran and Venezuela’s crude oil production declined passively, there are reports that there are differences within OPEC on whether to continue to reduce output in the second half of the year.

Saudi Arabia, the main producer of the reduction, exceeded expectations. Saudi Arabia, as the main force of production reduction, its share of output reduction reaches a quarter of the total output reduction. Therefore, the implementation of output reduction in Saudi Arabia plays a vital role in the final effect of production reduction. From January to March, Saudi Arabia’s output exceeded expectations. In March, its output fell by more than 500,000 barrels per day compared with the target of production reduction, and the implementation rate of production reduction reached 261%.

Venezuela’s output has been passively reduced. Venezuela’s crude oil production has fallen by more than 1 million barrels per day in the past two years due to the sanctions imposed by the United States and the domestic oil system. So far, there is no sign of a halt in the decline. In March, Venezuela’s output fell to 500,000 barrels per day due to the paralysis of its domestic power system. Meanwhile, in mid-March, Venezuela’s crude oil exports to the United States dropped to zero. Venezuela’s supply is expected to decline irreversibly in the short term.

Iranian crude oil exports fell further. Iran’s crude oil production and exports have continued to decline since the U.S. resumed sanctions against Iran in November. As of February this year, Iran’s crude oil production has fallen to 2743,000 barrels per day, the lowest level in the past five years. In addition, although the United States exempted major countries from importing Iranian crude oil, Iranian crude oil export data still showed a decline. Since November last year, Iran’s exports to Europe, South Korea and other places have dropped to zero. At present, only a few countries such as China and India are exporting, and the export volume is also gradually declining. In early May, the U.S. sanctions on Iran ushered in an important node, but the recent announcement of the U.S. regarding the Iranian Revolutionary Guard as a terrorist organization means that the possibility of continued exemption from U.S. sanctions on Iran is becoming increasingly low.

The US dominates non-OPEC supply, but upstream investment in shale oil continues to slow down

The United States dominates non-OPEC supply increments. According to statistics from the three major energy agencies, crude oil production in non-OPEC countries has increased by about 2 million barrels per day since 2019, mainly from the United States, which accounts for more than 80% of the increase, but overall the increase is less than that in 2018. As of April 5, the U.S. crude oil production reached 12.2 million barrels per day, a new record.

Upstream investment in shale oil in the United States has slowed down. The number of oil-active drilling rigs in the United States has declined in the past year or so, especially since the end of last year, the total number of oil-active drilling rigs in the United States has declined, falling to 824 in the same week as March 29, down 64 from the high at the end of last year, but the data in the last two weeks have recovered 17 from the low. According to the time lag of drilling rig oil price for about 4 months, drilling rig data may stop falling and rise again in the next 1-2 months. At the same time, we can see that in the data of seven major shale oil producing areas in the United States, unlike the sustained growth of inventory wells, the number of drilling wells has fallen in recent months, which is directly related to the decline in the number of drilling rigs. As the largest shale oil producing area in the United States, single well production in Permian Basin has been declining in recent years, which means that the efficiency of shale oil wells in this area is declining. At the same time, with the decline of production growth rate in the region, more drilling investment may be needed to maintain production in the future, which puts forward higher requirements for shale oil production costs. Shale oil enterprises may be committed to reducing production costs in the future.

Credit spreads of US high-yield debt are at the high level since 2017, and financing costs of shale oil companies are high. At present, the credit spreads of US high-yield bonds are at a high level since 2017. Shale oil companies are one of the main issuers, accounting for about 34% of the market. At the same time, the data is negatively correlated with oil prices. Since the beginning of this year, due to the rebound in oil prices, the data has dropped from 11% to about 9%, but it is still at a high level since 2007. The high credit spreads of US high-yield bonds mean that the cost of issuing bonds for shale oil enterprises is higher, which will further restrict the investment activities of shale oil enterprises upstream.

U.S. crude oil imports from Venezuela dropped to zero. The volume of crude oil imported by the United States from Venezuela accounts for 30-40% of Venezuela’s total crude oil exports. Since the United States imposed sanctions on Venezuela, the volume of crude oil imported by the United States from Venezuela has continued to decline. According to PDVSA data, the volume of crude oil imported by the United States dropped to zero in mid-March. Canada, Saudi Arabia, Mexico and other major sources of U.S. imports are reducing Venezuela’s volume. At the same time, crude oil imports may increase to other countries’crude oil imports. In addition, Venezuela’s refining operations in the United States account for 28 per cent, and it remains to be seen whether these refining capabilities will be affected if American refineries stop importing Venezuelan crude oil.

U.S. crude oil pipeline capacity will be released in the second half of this year. In 2018, inadequate pipeline capacity in North America led to the accumulation of regional crude oil stocks, and led to a sharp rise in WTI-Midland and WTI-WCS price spreads, but since then, with the increase of pipeline capacity, the current price spreads have returned to a reasonable level. However, this does not mean that crude oil pipeline capacity can meet the demand. According to OPEC statistics, the Permian crude oil production in the main shale oil producing areas of the United States has exceeded 3.7 million barrels per day, and exceeded the pipeline capacity of the area, which to some extent limits the growth of production in the region. According to the new pipeline plan of the United States, the new pipeline plan of the United States from 2019 to 2020 is expected to be 5.96 million barrels per day, and the new pipeline capacity from Permian to the Bay Area will reach 1.925 million barrels per day in 2019, most of which will be put into operation in the second half of this year, which also means that the inventory pressure of the Permian Basin will be eased in the second half of this year.

C Demand: Refining activities in the United States are gradually active, and future demand will increase in stages.

The economy is weakening and the growth rate of global crude oil demand is declining. It is obvious that the weakening economy of the major crude oil-demanding countries such as the world, China and the United States has an impact on demand. From historical data, the increase of global crude oil demand is positively correlated with global GDP and oil price, but there are some deviations between oil price and the high and low points of the former two. The global economy is likely to weaken further in the next two years, weakening overall in 2018, and the corresponding growth rate of global crude oil demand will also decline. EIA, IEA and OPEC forecast global crude oil demand growth of 1.4 million barrels per day, 1.4 million barrels per day and 1.21 million barrels per day in 2009, respectively.

The upside-down of U.S. bond yields has raised economic concerns and limited growth in U.S. crude oil demand. U.S. Treasury bond yields hang upside down, the economic outlook is worrying, and the increment of crude oil demand is limited. The IMF expects US GDP to fall to 2.3% in 2019 from 2.9% in 2018, and agencies’forecasts for US demand growth this year are also lower than in 2018. In addition, the recent upside-down of U.S. Treasury yields is considered a sign of economic recession, and the economic outlook is not optimistic. EIA, IEA and OPEC’s latest forecasts for U.S. crude oil demand growth in 2019 are 360,000 barrels per day, 290,000 barrels per day and 230,000 barrels per day, respectively.

US refinery imports enter the recovery channel, but terminal demand is divided. Since mid-February, refinery activity in the United States has been gradually active. Refinery start-up rate and crude oil processing volume have been rising, in order to prepare in advance in the peak season. Until early September, refinery imports in the United States will show seasonal growth, and will drive the degrading of crude oil stocks. The inventory report in late March was disturbed by a chemical tank fire in the Houston Channel of the United States. Refinery start-up rate declined, while crude oil stocks increased. But we believe that this is only a short-term disturbance. Refinery activity in the United States will continue to rebound in the second quarter. In addition, in recent years, the price gap of gasoline cracking in the United States has strengthened while that of diesel cracking has weakened substantially, which is mainly due to seasonal factors and the deviation of the price gap from the regression demand in the earlier period.

Price spreads: monthly spreads are stronger.

D. Contraction of price difference between European and American markets

Monthly difference: European and American crude oil monthly difference continues to strengthen

Since the beginning of this year, the monthly difference between European and American crude oil has strengthened as a whole. Brent crude oil has maintained backwardation structure for nearly two months. Recently, WTI crude oil C1-C12 has also changed from contango structure to backwardation structure, mainly affected by the continuous decline in U.S. stocks. WTI crude oil has performed better than Brent crude oil in recent months.

Regional Spread: Contraction of Spread in European and American Markets

In the first quarter, Brent-WTI crude oil price difference strengthened. The reason why Brent crude oil is stronger than WTI crude oil lies in the regional supply and demand situation. The continuous growth of domestic production in the United States and the accumulation of Cushing stocks have suppressed the trend of WTI crude oil, while the non-U.S. market is strong due to the reduction of production in oil producing countries. But since March, the price gap of Brent-WTI crude oil has shrunk due to the decline of output growth and the continuous de-stocking of WTI crude oil in the U.S. market. As far as the US is concerned, the price difference between WTI crude oil and other domestic markets has continued to strengthen recently, and the price difference between WTI-Midland, WTI-LLS and WTI-MEH has rebounded.

Pyrolysis Spread: Reasonable Regression Range of Gasoline and Diesel Oil Pyrolysis Spread

In the first quarter, the trend of gasoline and diesel cracking price difference in Europe and the United States was divided. Before March, the situation showed that the gasoline cracking price difference was weak and the diesel cracking price difference was strong. But in March, the gasoline cracking price difference became stronger and the diesel cracking price difference began to weaken. With the warming of the weather, the heating demand gradually ended, while the gasoline demand returned after seasonal factors and the earlier price difference deviated. It is hoped that it will gradually recover and further support the strengthening of gasoline cracking profits and the weakening of diesel cracking profits.

E-fund position: fund multi-space ratio rebounded

Since the beginning of this year, the net long positions of large speculators in crude oil futures have increased continuously, and the ratio of short positions has continued to rise. The net long positions of the five major oil funds have reached a new high since November last year. The growth of long positions and the decline of short positions mean that the market remains bullish. But at the same time, we also see the growth of short positions on Brent crude oil. With the rising focus of oil prices, the gradual entry of spot positions will be the greatest resistance to oil prices.

The impact of global economic weakening on crude oil demand level and the suppression of market investment sentiment will run through the first half of the year. Logically, demand determines the long-term fluctuation range of oil prices, while the dominant factor of medium-term and short-term fluctuations is still supply.

The implementation of the first-quarter reduction agreement, the passive reduction of production in Venezuela and Iran, and the slowdown of upstream investment in American shale oil have tightened the supply side. The second-quarter reduction alliance will decide the future direction of the reduction agreement. Meanwhile, the sanctions imposed by the United States on Iran are at an important juncture. Whether the sanctions will continue to be relaxed after the expiration of the exemption in early May is still uncertain, while the upstream investment in American shale oil has slowed down. Obviously, the growth rate of output has further declined. From the consumer side, refinery activities in North America will gradually be active in the second quarter, refinery oil imports will increase seasonally, which will further promote inventory de-industrialization.

Overall, the tight supply-side situation in the second quarter is still expected to continue, while the consumer side will also rise seasonally, but the marginal effect will decline after the first quarter yield reduction is basically realized, combined with the pressure of hedging market entry, the role of supply and demand in driving oil prices will be weakened, and more attention will be paid to the geopolitical and oil-producing countries’policy changes in the second quarter. On the trend, the current upward trend of oil prices continues. The Brent crude oil operation center is expected to be in the $65-75 range in the second quarter, but the market risk will increase in the middle and late of the second quarter, and there will be variables in the market.