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Market Outlook After a difficult struggle for oil prices at lower levels, they faced another setback late Thursday when Trump announced plans to meet with Putin in Budapest following a 2.5-hour phone call between the U.S. and Russian presidents. This news pushed oil prices to new lows for the second half of the year, while gold surged above $4,300, reaching record highs. Despite Trump's claims of a conversation with Modi, where the latter committed to halting oil purchases from Russia, and Saudi Aramco's warning of potential global oil shortages without increased investments, these bullish factors struggled to boost market sentiment. Since mid-October, several authoritative institutions and major traders in the physical market have achieved a consensus that the crude oil market faces distinct oversupply pressures ahead. After recent substantial declines, the rebound efforts have been weak, with little willingness among investors to chase prices higher.
The physical market in the Middle East remains sluggish, and the crack spread for refined products in Europe and the U.S. shows similarly weak performance. The supply-demand dynamics within the crude market lack effective support for prices. Despite a significant reduction in net imports, EIA data showed that U.S. crude inventories still climbed by 3.52 million barrels, requiring further declines.
As the market has been dominated by oversupply expectations and escalating trade tensions between China and the U.S., the potential for oil price rebounds continues to be constrained. Recent geopolitical de-escalation further strengthens bearish trends in oil prices, prompting market participants to lower their expectations for future oil prices. Ultimately, oil prices remain under pressure near the support levels seen during April and May, as the peak of the oversupply burden has yet to arrive. During this phase of a tug-of-war around support, oil prices will maintain high volatility, requiring careful rhythm management.
Daily Updates 1. WTI crude oil futures fell by $0.81, a decrease of 1.39%, settling at $57.46 per barrel; Brent crude oil futures dropped by $0.85, down 1.37%, closing at $61.06 per barrel; INE crude futures decreased by 1.83%, ending at 435.1 yuan. 2. The U.S. Dollar Index declined by 0.31%, standing at 98.36; the HKEX dollar to RMB exchange rate fell by 0.04%, reaching 7.0994; the yield on ten-year U.S. Treasury bonds rose by 0.37%, to 113.75; the Dow Jones Industrial Average decreased by 0.65%, at 45,952.24.
Recent Notable Events 1. Is China's purchase of Russian oil part of U.S.-China trade negotiations? The Foreign Ministry firmly opposes the U.S. using China as a talking point. On October 16, Foreign Ministry spokesperson Lin Jian held a regular press conference. A reporter from AFP asked about Trump's statement regarding India's commitment to halt purchases of Russian oil, accompanied by his call for similar action from China. Lin emphasized that China had consistently articulated its position on this matter; its energy cooperation with countries, including Russia, is legitimate and lawful. He criticized the U.S. approach as a typical case of unilateral bullying and economic coercion, severely undermining international trade rules and threatening the stability of global supply chains. Lin stated that China has maintained an objective and fair stance on the Ukraine crisis, and reiterated opposition to the U.S. imposing illegal unilateral sanctions and exercising extraterritorial jurisdiction.
2. Saudi Aramco CEO Warns of Potential Global Oil Shortage without Increased Investment. The CEO of Saudi Aramco cautioned that the world may soon face oil shortages as the energy sector has largely abandoned exploration for new oil fields over the past decade. He urged the industry to ramp up exploration and production investments as global oil demand persists, stating that current investment levels are "extremely low." He also noted that a repeat of the U.S. shale oil boom is unlikely. “In the past, 80% to 90% of production growth came from shale oil,” he stated, “but in the next fifteen years, shale oil output is likely to stabilize or even decline.” Many analysts now believe that due to the slower pace of energy transition, oil consumption will be stronger than previously predicted. Consulting firm Rystad estimates that, as a result, the global market may face a supply shortfall of nearly 10 million barrels per day by 2040. The CEO pointed out that new projects typically require five to seven years to be developed, meaning future oil supply depends on actions taken by companies now.
3. Major Oil Traders Report that Long-Awaited Supply Surplus has Arrived. Some top global commodity traders indicated that the long-anticipated oil surplus is finally emerging, which could depress prices. Since late last month, due to excessive production from OPEC and its allies, as well as other oil-producing nations amidst general market oversupply concerns, Brent crude has fallen by 11%. Front-end curves, used by traders to gauge market strength, also depict a bearish outlook for the U.S. oil market next year.