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TIP: What to expected from the Coming OPEC+ meeting ?

The 10%+ drop of crude oil futures price on last week did cause a lot of market anxiety, especially after thanksgiving，which is one the lowest liquidity days in the U.S. stock market.

Javier Blas, The Chief Energy Correspondent at Bloomberg News said that before that, there have been only 14 scenarios where crude oil fell by 10%!

As figure shows above: Brent crude oil plunged 14% intraday to $72.14 per barrel, while West Texas crude (WTI)fell 12% intraday to $77.28 per barrel. From the perspective of technical trends, the crude oil futures prices had felt below the key support level (100-day moving average) on the same day.

Regarding the decline reasons:

The voices on the market mostly interpreted as below:

The initial plunge was caused by concerns about the re-issue of a large-scale blockade and travel ban.

Then the adding the news of the "Omicron" virus coming out from South African, the market was worried that the epidemic would intensify and the demand for crude oil would be impacted.

Finally, it was thanksgiving trading day with trading volume decreased and downwards sells increased.

My concern for this week will be， will the oil crashed will dragged the US Stock market？

As Currently，My personal account with 80% in position and 20%  are remain cash……

Acrroding to the public information and historical observation: It is pointed out that there has a linkage effect between the crude oil market and the U.S. stock market:

Since 2000, the overall trend of the stock market has mainly depended on economic fundamentals, but if the oil price plummets affected the major fundamentals of economics, then the stock market is likely to decline sharply.On the contrary, the stock market will remain strong.

See from the above two charts' comparison: there was a simultaneous plunge in oil prices and the stock market in 2008(The Finacial Crisis Period); Then oil prices plunged in 2014 and the US stock market was fluctuated; While in 2020, oil prices and the stock market simultaneously plunged again .

But the backgroud factors also worth be known:

• When the 2008 financial crisis happened ,

The global economy had reached a deep bottom, and the insufficient demand has caused oil prices plummet. In deepth ,the plummet of oil prices caused U.S. inflation data to fall to a negative range, and the unemployment rose, then the Fed has started launch of QE from continuous interest rate cuts.

Lehman Brother applied for the largest bankruptcy protection in American history, which became a sign of the full outbreak of the financial crisis. The U.S. stock market basically follows a unilateral downward trend in oil prices. During July 2007 and March 2009, the S&P 500 has felt by 47%.

• When the oil prices plummeted in 2014,

This decline is mainly because of the sharp increase in U.S. crude oil production in 2014, which significantly led Saudi Arabia and Russia. In order to curb shale oil producers,OPEC（the organization of oil-producing countries） also increased production significantly,further exacerbating the global oversupply of crude oil.

Then WTI crude oil fell from around US$100/barrel in 2014 to around US$30/barrel in 2016. The cumulative declines exceeded 70%.

The decline in oil prices has brought about a decline in US inflation data again. The difference is that the Fed raised interest rates in 2015 for the first time in nearly 10 years .The US stock market maintained a volatile trend, as the plunge in oil prices was caused by the supply side, not by the demand side ，which had brought very limited impact on the US stock market.

• Under the 2020 Covid-paindemic, oil future prices and stock markets both plunged again,

IF saying that the 2008-oil-price-plunge was triggered by the demand side, the 2014-oil-price-plunge was triggered by the supply side, then Seems the 2020-oil-Price-plunge was triggered by the combined action of the supply and demand sides.

The 2020 coronavirus disrupted the rhythm of the global economy suddenly，the economies of many countries have stagnated, oil demand has shrunk sharply, then the oil future prices declined, and global stock markets have also plummeted. In addition, there started an international crude oil price war since March 2020 which put further pressure on the oil future prices.

So what's the current supply & demand situation of the crude oil market?

Will the oil future prices continue to rise or fluctuate?

Will the long bull of US stocks trend continue?

• See from the Demand side:

Since 2021, with the relief of the pandemic and the resumption of global production, demand has risen sharply.

OPEC had forecast recently that oil demand will be 96.6 million barrels per day in 2021，and By 2023, global oil demand will be 101.6 million barrels per day, and will continue to increase to 107.9 million barrels per day by 2035.

Currently，The United States and China together consume nearly 35 million barrels of oil a day, which covers more than 1/3 of global demand.

Various energy prices have soared, and crude oil prices have reached their highest point in seven years. However, oil prices have pushed up gasoline prices and living expenses in many countries, and pushing up the inflation data.

• See from the Supply side:

In July 2021, the world's major oil-producing countries have agreed to increase production in order to reduce the excessive growth of oil prices and ease the pressure of world economic recovery.

The United States President Biden is using all the tools at his disposal to reduce prices and solve supply shortages.

China, Japan, India, the United Kingdom and other major oil-consuming countries are considering coordinating the release of part of their respective oil strategic reserves.

• From the Data perspective：

Last Tuesday, the White House announced that it would release a strategic reserve of 50 million barrels of oil to stabilize the soaring domestic energy and gasoline prices.

Chinese officials said on November 18 that the release of crude oil reserves is underway, and the British government will also allow companies to voluntarily release 1.5 million barrels of oil from privately held reserves. India will release 5 million barrels; South Korea and Japan will also announce the number and timing of their release in due course.

OPEC said that it is worried that the resurgence of the new virus may reduce oil demand again,therefore, the increase in production has not been greatly improved.

Damien Courvalin, a commodity strategist at Goldman Sachssaid on Friday: Under the negative impact of the new variant of the virus, the impact on oil market in 3 months will be 700,000 barrels per day. Plus by the aviation industry and the strategic reserves released by various countries, the entire crude oil market is expected to reduce demand by 4 million barrels per day in the next three months.

Damien Courvalin also mentioned that oil prices will fall by up to $5/barrel from the previous forecast of $85/barrel during 21Q4 to 22Q1.In other words, even with the worst results, oil prices should be maintained at $80/barrel. And in terms of the latest closing price, it seems that there is still a lot of room for arbitrage?

Will the New variant virus intensify in the coming future？Do you think there has a big callback demand for the US stocks? And what strategic changes will be made during the coming Thursday OPEC+ meeting？

So far the demand still exits，but if Blacks Swan happens，Demand increases the supply of oil continues increase，that may hurt the oil price for sure.

Currently, we are waiting to know wether the meeting will come out a decision to adjust its plan to increase output by 400,000 barrels per day since January 2021.

Regarding the trend of US stocks, I will also look into some stock which can show the leading forcast, if you have any comments on oil market and US stock's trend, please join my discussion. Thanks.