Cajeput Oil

Recent Market Dynamics Intelligence on Diesel

I. International Market Dynamics
1. Crude Oil Price Fluctuations:
- Recently, international crude oil prices have exhibited a volatile trend, influenced by geopolitical tensions, OPEC+ production policy adjustments, and global economic recovery expectations. Brent crude futures prices have fluctuated within the range of $75-$85 per barrel.
- Changes in U.S. crude oil inventory data have short-term impacts on market sentiment; prices rise when inventories decrease and face downward pressure when they increase.

2. Global Supply and Demand Landscape:
- Supply side: OPEC+ maintains its production cut agreement, although the execution intensity by some member countries is questionable. U.S. shale oil production is steadily increasing, while Russian exports have been only limitedly affected by sanctions.
- Demand side: North America and Europe have entered the winter heating season, leading to a seasonal recovery in diesel demand. In Asia, industrial diesel demand has increased due to the recovery of manufacturing activities.

3. Geopolitical Risks:
- Tensions in the Middle East remain high, with slow progress in Iran nuclear issue negotiations, supporting oil prices due to market concerns over supply disruptions.
- The escalation of the conflict between Russia and Ukraine has increased uncertainty in Europe's energy supply, raising the demand for diesel as an alternative energy source.

II. Domestic Market Dynamics
1. Price Trends:
- Domestic diesel wholesale prices have recently risen slightly, with mainstream transaction prices in the range of 7,800-8,200 RMB/ton, an increase of approximately 2-3% compared to last month.
- Retail prices, influenced by the National Development and Reform Commission's price adjustment window, saw the average retail price of 0# diesel rise to approximately 7.5 RMB/liter after this round of adjustment.

2. Supply and Demand Relationship:
- Supply side: Domestic refinery operating rates remain high, and independent refinery output has increased. However, winter environmental production restriction policies constrain supply in certain regions.
- Demand side: Fuel demand from logistics transportation and agricultural machinery remains stable, while winter heating demand supports diesel consumption in northern regions.

3. Policy Impact:
- The increase in refined oil export quotas has led some refineries to intensify export efforts, alleviating domestic supply pressure.
- Expectations of tax policy adjustments: Market rumors suggest that consumption tax reform may be implemented, prompting some traders to stockpile goods in anticipation of price increases.

III. Related Product Linkages
1. Gasoline Market:
- The linkage between gasoline and diesel prices has strengthened, but the increase in gasoline prices is weaker than that of diesel due to sluggish passenger vehicle consumption.
- The gasoline crack spread has narrowed, reducing refineries' enthusiasm for blending, which may indirectly affect diesel supply.

2. Alternative Energy:
- LNG prices have risen significantly due to international market influences, causing some logistics vehicles to switch to diesel, thereby supporting diesel demand.
- The promotion of new energy trucks is slow, with limited short-term substitution effects on diesel.

IV. Analysis and Judgment
1. Short-term (1-2 weeks):
- International crude oil prices are supported by geopolitical factors, but a strong U.S. dollar and expectations of global economic slowdown limit price increases. Brent crude oil is expected to fluctuate between $80-$85 per barrel.
- Domestic diesel prices, driven by cost pushes and recovering demand, are expected to continue a slight upward trend in wholesale prices, with retail prices adjusting according to the price adjustment window.

2. Medium-term (1-3 months):
- OPEC+ production policies and the U.S. Strategic Petroleum Reserve release plan are key variables. If the supply side tightens, oil prices may break through $85 per barrel.
- The domestic winter demand peak will continue, supported by export quotas, keeping diesel prices at high levels with volatility. However, caution is needed regarding the risk of demand decline before the Spring Festival.

V. Forecast
1. Price Range:
- The expected operating range for domestic diesel wholesale prices next month is 8,000-8,400 RMB/ton, with retail prices between 7.5-7.8 RMB/liter.

2. Risk Factors:
- Upward risks: Escalation of geopolitical conflicts, unexpected OPEC+ production cuts, and increased demand due to cold waves.
- Downward risks: Global economic recession, the spread of new coronavirus variants, and accelerated substitution by new energy sources.

3. Recommendations:
- Traders: It is advisable to moderately increase inventory while controlling positions to guard against risks from policy adjustments and demand declines.
- End users: Procure as needed, avoid concentrated stockpiling, and monitor price adjustment windows and international oil price trends.