At the beginning of January, international oil prices had a strong start, closing higher for five consecutive trading days, drawing significant market attention. On Friday, WTI crude oil performed particularly well amidst a cold wave, emerging as the leading commodity in the global market. At the same time, SC crude showed strong performance against the backdrop of a weak RMB exchange rate, driving this week's oil price increase to over 5%, far exceeding other commodities.
This surge broke the small trading range volatility of the oil market over the past three months, reflecting the market's choice of the path of least resistance upward due to low inventory levels and unmet demand expectations. A similar rise occurred at the same time last year, but this year's rally started earlier and the market outlook is more optimistic.
The Cold Wave Drives Oil Rebound, Market Sentiment Bullish
According to weather forecasts, a cold wave from the polar vortex will make this January the coldest in ten years. The cold wave has affected various aspects of oil and gas production, refining output, etc., from the US Midwest to the South, with outdated power infrastructure facing severe challenges. The short-term supply shock from the cold wave, coupled with the market's enthusiasm for crude oil, has spurred a rapid rise in oil prices.
Although the support from the cold wave is a temporary factor, the current market atmosphere remains significantly bullish. The rush of capital has driven an expectation-led rebound, with market optimism growing over the past week. Some analysts predict that if the cold wave's actual impact is substantial, oil prices could further challenge the October 2024 high.
Weak Demand in China Restrains Long-term Performance
Compared to the international market's heat, China's crude oil demand remains weak. High-frequency data shows that China's crude processing volume is below last year's level, with a noticeable accumulation of refined product inventories. The rapid spread of new energy further substitutes diesel and gasoline demand, with an expected reduction in consumption by about 15 million tons by 2025, becoming an important long-term constraint on oil price rises.
Short-term Outlook: Oil Prices May Face Volatility Adjustments
In the short term, the strong performance of the oil market, propelled by the cold wave, may continue. However, the effects of the cold wave are typically cyclical, and as they gradually dissipate, the market may return to being driven by fundamentals. As short-term overbuying accumulates, investors should be wary of potential volatility risks.
Whether this surge can lead to a larger-scale rebound remains to be seen in terms of the cold wave's specific impact on the US oil market, as well as subsequent changes in inventory and demand data. While maintaining a trend-following approach, investors should also be cautious of potential high-volatility risks and manage trading rhythms to adapt to market changes.
