On July 19, international oil prices plummeted. The settlement price of the main contract in the U.S. WTI crude oil futures market was 66.35 US dollars / barrel, down 5.31 US dollars or 7.4%. The settlement price of the main contract in the Brent crude oil futures market was 68.62 US dollars / barrel, down 4.97 US dollars or 6.8%. WTI and Brent crude oil both recorded the biggest decline in March, mainly because the OPEC + and OPEC + reached an agreement on increasing production, and the expectation of increased supply from oil producing countries was suppressed; As well as the resurgence of the epidemic and the surge of new crown infection cases in many countries, the market’s worry about the prospect of demand is heating up.

After a long negotiation, the policy boots of OPEC + oil producing countries finally came into effect. Oil ministers of oil producing countries agreed on Sunday to increase oil supply from August. As the global economy continues to recover, the oil price has risen to a two-and-a-half year high before. The increase in production policy is aimed at curbing the rising trend of oil price, which has aroused the market’s concern about the oversupply of crude oil. Affected by this, oil prices also fell sharply.

The content of the production increase agreement: from August 2021, the production will be increased by 400000 B / D per month until the active production reduction of 5.8 million B / D is fully restored; The OPEC production reduction agreement, which will be implemented in April 2020, will be extended to December 31, 2022; In addition, the quota of some oil producers will be increased.

The market had been psychologically prepared for OPEC’s increase in production policy, and the increase in production policy did not exceed expectations. But why did the oil price fall so heavily after the implementation of the policy?

The important driver of the drop in oil prices is still the epidemic. In the background of COVID-19′s severe trend, variety and speed of transmission, OPEC has reached an increase in production agreement to further strengthen the driving force for the fall in oil prices. According to relevant news, with the spread of delta variant virus in the world, the number of infected people in the United States increased by 70% last week, and the number of infected people in France increased by 80% in a week. The epidemic situation has worsened again, which may be followed by the re implementation of strict epidemic prevention and blockade measures in many countries and regions, which will directly threaten the economic restart and recovery, And then depress the international crude oil price from the demand side. The spread of delta variant of coronavirus has once again put people’s optimistic expectations of economic recovery into question. It has not only brought about a sharp drop in crude oil and other assets, but also triggered a sharp drop in global stock markets. The yield of us long-term treasury bonds has also dropped to the lowest level in several months.

Returning to the supply and demand fundamentals, we can learn from the recent US commercial crude oil inventory data that US crude oil inventory has declined for eight consecutive weeks. According to the preliminary survey results released on Monday, US crude oil inventory is expected to decline for the ninth consecutive week last week, and gasoline inventory is also expected to decline. The United States is also in the driving season in summer, with strong fuel demand, which also forms a strong support for oil prices.

In the future, the crude oil analysts of business club believe that the OPEC policy will be implemented and the production will continue to advance. In the medium and long term, the oil price will seek a new balance under the game of demand, supply and inventory in the future. In the short term, with the recent release of bad news, the downward space of oil prices may be limited. At present, we still need to focus on the changing trend of the epidemic situation. Affected by this, the short-term oil prices will be more volatile.