CITIC SEC: Oil prices may return to cost pricing stage, need to pay attention to OPEC supply release pace and local geopolitical event disturbances in the medium to long term.

CITIC SEC released a research report stating that in the medium to long term, as the impact of geopolitical events gradually weakens and under a state of basic supply-demand balance, oil prices may return to a cost pricing stage. According to Rystad Energy data, the average break-even price for the full cycle of the US shale basin is around $54 per barrel. The World Bank predicts that the average fiscal break-even oil price for OPEC+ in 2024 will be around $74 per barrel. Therefore, the bank believes that Brent crude oil prices can find support in the range of $60-65 per barrel. Considering that there are still local geopolitical events in the Middle East and Russia-Ukraine, and with the arrival of winter heating demand, Brent oil prices are expected to fluctuate between $65-75 per barrel in Q4 2024, and in the medium to long term, attention still needs to be paid to the pace of OPEC supply release and the disturbance of local geopolitical events. Despite the phased adjustment in commodity prices, the valuation advantages and dividend attributes of stocks will continue to make them the preferred direction for the market. The main points of CITIC SEC are as follows: Recently, oil prices have seen a significant decline, falling to a new low since December 2021 on the night of September 10. On September 10, 2024, OPEC once again lowered its forecast for global oil demand growth in 2024. The monthly report predicts that global oil demand in 2024 will increase by 2.03 million barrels per day, lower than the previous forecast of 2.11 million barrels per day. International crude oil prices plummeted, with Brent crude oil futures prices hitting a new low since December 2021. As of the close of September 10, WTI crude oil futures prices fell by $2.96 to $65.75 per barrel, a decrease of 4.31%; Brent crude oil futures prices fell by $2.65, a drop of 3.7%, closing at $69.19 per barrel, hitting a new low since December 2021, and a decrease of 10.2% from the beginning of the year. On the demand side, Chinese demand is declining, and there may be a decline in demand as the US peak season ends. As of August 30, US apparent consumption was 16.92 million barrels per day; up 5.6% WoW, up 7.9% YoY. From January to August 2024, cumulative crude oil apparent consumption was 54.5 billion barrels per day, up 5.2% YoY. Although US demand has performed well, as the peak season ends, demand may decline. China's apparent crude oil consumption continued to decline in July, but consumption of refined oil products slightly increased. Due to lower operating rates in the crude oil processing and manufacturing industry and the chemical industry in July, demand for raw oil declined. Considering the expectation of gradual increase in refinery operating rates in August-September, the "Golden September and Silver October" is expected to drive a slight increase in domestic crude oil demand. On the supply side, OPEC's additional production capacity in July raised market concerns. US rig count and crude oil production remained stable. As of September 6, the US oil rig count was 483, stable for four weeks. As of August 30, US crude oil production was 13.3 million barrels per day, the same as at the beginning of the month, an increase of 500,000 barrels per day YoY. The increase in OPEC production is an important reason for the recent decline in crude oil prices. In July, OPEC production was 26.75 million barrels per day, an increase of 185,000 barrels per day from June, causing market concerns about an increase in supply. Production increased in Saudi Arabia, Iraq, and Iran, while production decreased in Libya. Russia's production increased in July and did not meet the production cut quotas, but the Russian Ministry of Energy stated that compliance will improve in August-September, and additional cuts will be made in October-November. On September 5, OPEC announced that eight member countries had agreed to extend the additional voluntary production cut of 220,000 barrels per day for two months until the end of November 2024. However, with sufficient idle oil production capacity, the market is concerned that an increase in production will disrupt supply-demand balance. According to IEA data, Brazil and Guyana are expected to add 340,000 barrels per day in 2024, and 300,000-400,000 barrels per day in 2025, a significant increase. On the geopolitical front, there are no significant disturbances, but the US election may accelerate risk release. The progress of the cease-fire agreement between Israel and Palestine is slow, conflicts on the Lebanon-Israel border continue, and Libyan oil exports are expected to resume, all factors that are disturbing crude oil prices. On September 11th, Beijing time, Harris and Trump had their first televised debate, given Trump's past lenient attitude towards oil policy, the market released risks early, accelerating the drop in oil prices on September 10th. Based on the debate results, there were fewer traditional energy-related viewpoints, and oil prices stabilized. Risk factors: Geopolitical conflicts exceed expectations; Supply growth exceeds expectations; Demand recovery is weaker than expected; The pace of the US Federal Reserve's interest rate cuts is not as expected or unexpectedly tightened.