The impact of oil prices on the Chinese economy global shock

Text/Hong Yan

The author is the managing director of the International Bank of Communications and the head of the research department

Send 2020.3.23 Total 940th China News Weekly

As the OPEC+conference held on March 6 failed to reach an agreement on the specific reduction of production and quotas, Saudi Arabia launched a fight for oil prices to deter Russia, announcing increasing production and downgrading the price.The price of crude oil futures plummeted by 30 % overnight, and the price of gold oil has soared from an unprecedented comparison, and a new oil crisis is vaguely visible.

Subsequently, the VIX market risk implication index soared rapidly, risk assets plummeted, and multinational stock market triggered the fusion mechanism.The extreme market price has plummeted, and behind it is the increase in the probability of global economic recession.Fund swarming into the hedge asylum to seek asylum, but because the price of the hedge asset itself is very expensive, these assets are no longer an absolute air -hasn.

The plunge of oil prices also caused a severe fluctuation of global assets. The most direct response was that oil assets burst out.Because oil is a very significant commodity variety, many hedge funds will have petroleum positions.After the oil assets burst, relevant companies will be forced to close their positions.

The price of junk debt in the United States has also plummeted.In the past ten years, the American shale gas industry has been prosperous.The advancement of technology allows oil companies to issue low -rated junk debts at lower prices.This is a debt with low credit spreads and very dangerous, because these oil companies are completely relying on oil mining and selling oil.If the economy is prosperous and the market is stable, the oil company can use relatively low interest to issue garbage bonds, but as oil prices continue to fall, the capacity of trash debt repayment of these companies will be greatly affected and endangers the stability of the entire financial system.

The huge uncertainty at both ends of oil supply and demand

From the perspective of demand, the global spread of the new crown virus epidemic has impacted the growth of the real economy and the demand for oil is frustrated.

Although the prevention and control of the domestic epidemic in China has adopted the impact of the return and resumption of work, the war epidemic is basically at the end of the end, but the new crown pneumonia epidemic is continuously spreading.More countries and regions will take higher -level emergency response measures to suspend the high cost of economic activities to prevent the spread of the epidemic.In this case, the global risk of stopping the real economy and the broken industrial chain, and residents' consumption confidence and willingness are also greatly frustrated.

The International Energy Agency (IEA) has also recently lowered the expected demand for oil, the first time since 2009.If governments of various countries cannot effectively control the spread of the epidemic, more and more countries will need to take more severe control measures.The continuously upgraded traffic control will lead to the continued decrease in demand for aviation kerosene, gasoline and diesel, and industrial fuel, including petrochemical raw materials, will be greatly impacted.If so, the demand for oil will still face the risk of further weakening, and it will be difficult to boost oil prices.

The supply of oil is also facing great uncertainty.At present, OPEC, the United States and Russia are the world's major oil production organizations and countries.OPEC, as the world's most concentrated area of oil reserves and output, its oil reserves account for 80 % of the world's total reserves, and oil production accounts for 40 % of the world's total output.In the pattern of slowing down the growth rate of shale oil production and OPEC+joint reduction, oil supply and demand have maintained a weak balance.However, in the face of intricate politics, economic environment and the situation in the Middle East, factors such as the OPEC+joint production reduction plan and US shale oil will impact oil supply. The global oil supply and demand balance will be broken.sex.

As Saudi Arabia ’s oil production prices are the lowest, Saudi Arabia insists on using this extreme price war to force Russia to return to the negotiating table?At present, this possibility still exists.If the two parties can reach a production reduction agreement next, the crisis may find a solution.But at present, everything is still unknown.

In addition, if the epidemic can be effectively controlled, countries will no longer need to implement traffic restrictions and sealing, so as economic production activities recovery, global oil demand will gradually recover.

Causes Tongsh contrast expectations

The tap expectations caused by the decline in oil prices have eased China's inflation upward pressure to a certain extent, giving more choices for China's monetary policy, and opening more space for reverse cyclical adjustment. The accuracy rate can continue to be reduced, and the market interest rate may decline.

Previously, due to factors such as the supply chain impact and super pig cycle caused by the new crown epidemic, China's inflation pressure reached the highest in the past ten years.In January and February of 2020, CPIs increased by more than 5 % year -on -year, which was higher than market expectations.

In addition, the decline in oil prices can also make China profit, because the cost of oil imports will be greatly reduced.China is the world's largest net oil importer, and oil consumption ranks second in the world, second only to the United States.In 2019, Chinese crude oil imported 506 million tons, which is equivalent to importing about 10 million barrels of crude oil per day.Calculated by falling from a $ 70 barrel to a $ 30 barrel, China can save $ 400 million a day.

The reduction of the cost of imported oil imports will reduce the energy expenditure of manufacturing, transportation and other industries, and pass to the middle and lower reaches through the industrial chain to reduce the overall operating cost of the economy and help the Chinese economy to accelerate the recovery from the impact of the epidemic.In addition, the decrease in energy expenditure will also promote residents to use expenses saved for other consumption and drive economic growth.

However, the negative effect of decline in oil prices will impact the energy industry.The lower oil price will trigger the decline in refined oil prices and reduce the profit margin of oil companies.For example, during the decline in oil prices in 2016, PetroChina, as the upstream industry, has gone through the most bleak start since listing. In the first quarter, net profit returned to the mother was 13.7 billion yuan.It is a sharp contrast that Sinopec, which is focusing on the midstream and downstream layout, has experienced high -speed growth.

In the short term, oil companies focusing on upstream exploration and development may reduce output due to the lower oil prices to limit losses.In the long run, if the price of oil continues to be sluggish, it will cause the production capacity to be cleared, forcing some enterprises to withdraw.However, this also achieved the industry's survival of the fittest to a certain extent, and enhanced the industry concentration.

On the other hand, falling oil prices will reduce investment income from high oil prices.The oilfield exploration and development cycle is long, and the early investment will have a great impact on the operating costs of the later period.If the price of oil is lower or even lower than the cost price at the time of investment, companies will suffer losses.

Oil prices have also been one of the most important indicators for inflation expectations.The deflation expectations caused by the decline in oil prices have increased the difficulty of implementing the monetary policy of developed countries, and market uncertainty is also rising.

At present, US Treasury yields have fallen to a historical low, and the 30 -year national bonds have dropped to less than 1 %, and 10 years of national bonds have dropped to less than 0.5 %.When the narrowing expectations are formed, the Fed's monetary policy will fail.Sure enough, the Federal Reserve has lowered the target range of the fund interest rate to 0 to 0.25 %, and started at least $ 700 billion of a new round of quantitative easing.

Some modern currency theories have begun to discuss the Fed's negative interest rate interval.However, because the Fed is essentially not only the central bank of the United States, but also the global central bank, US Treasury bonds are the global shelter. If the Fed implements negative interest rate policies, it will be a real crisis and disaster in the world.

If the global economic recession has occurred, China will be difficult for China to be alone.According to Predictit's prediction, the possibility of decline in the United States has risen to 65 %, and the possibility of the New York Fed (NY FED) has risen to the level that cannot be turned back in history.This recession that surpasses the decline of short -term transaction fluctuations is worthwhile to be vigilant.

Due to the prevention and control measures such as the closure of cities and isolation in China, the service industry has reduced the level of trillion.Once the external needs are stagnant, China's economic recovery will also face greater difficulties.