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international oil prices have collapsed, and the collapse is quite thorough...

on tuesday, as the global benchmark brent crude fell below $70, oil prices hit their lowest level since december 2021.compared with its high point in april this year, brent crude oil’s current cumulative decline has exceeded 22%, officially entering a technical bear market.

in fact, compared with the sharp drop in prices, what is perhaps more "shocking" to market participants at the moment is the popularity of the crude oil market.

well-known financial blog zerohedge tweeted on the x platform on tuesday that:commodity prices are currently pricing in the toughest economic hard landing this century: oil market sentiment is even worse than during the peak of the global financial crisis, the european sovereign debt crisis and the global covid-19 lockdown.

judging from the position data, this deafening warning is obviously not an exaggeration.as shown in the chart below, hedge funds' net long positions in crude oil are currently falling to historic lows.

as energy expert john kemp has tallied, hedge funds and other money managers sold the equivalent of 117 million barrels of the six most important crude and refined product futures and options contracts in the seven days ending september 3.

note: the red line in the figure is the net position data

overall holdings fell to just 93 million barrels, the lowest level in at least a decade. fund managers sold almost all of them, with changes in positions including wti crude oil from nymex and ice (-66 million barrels), brent crude oil (-38 million barrels), european diesel (-9 million barrels), us diesel (-3 million barrels) and us gasoline (-1 million barrels).

negative sentiment towards crude has quickly extended to refined fuels, with extremely strong bearish sentiment towards gasoline and especially diesel and other middle distillates.

the current pessimism in the oil market is evident as brent oil prices fell about 10% last week even after opec+ announced a two-month delay in its planned production increase. saudi arabia has also cut pricing for its flagship crude grade for key asian markets in the latest sign of weak demand.

from the perspective of supply and demand, the threat of a potential slowdown in the global economy, including the united states, is not new news. however, many oil industry executives said at the appec conference in singapore on monday that china's oil demand growth has also been slowing due to the accelerating transition to electric vehicles and clean energy.daan struyven, head of oil research at goldman sachs, estimates that china's oil demand growth has slowed to about 200,000 barrels per day, compared with an annual growth rate of 500,000 to 600,000 barrels per day in the five years before the outbreak of the covid-19 pandemic.

russell hardy, chief executive of vitol group, said china's shift to electric vehicles will cause domestic gasoline demand to peak early this year or next.

on the supply side, thanks to technological advances and efficiency improvements, u.s. shale oil and gas output has increased by 30% in the past three years, almost offsetting opec's efforts to cut production, which has also made the prospect of slowing demand more prominent in the current pressure on oil prices. as the biden/harris administration does its utmost to keep commodity prices as low as possible before the election, actual gasoline prices are approaching historical lows.

note: the upper picture shows the crude oil production of the united states, and the lower picture shows the crude oil production of opec

judging from the fluctuations in oil prices this week, an interesting phenomenon is that every time at 10 a.m. eastern time (22:00 bjt), the price of brent crude oil will experience a short-term sell-off.

as for the crude oil forward curve, the backwardation pattern that was bullish 2-3 months ago is now almost gone.brent crude 12-month spread has fallen from $4 to $1 in the past month, and the entire curve is rapidly shifting from a spot backwardation to a bearish futures contango.

note: the spot premium trend, from top to bottom, is 3 months ago, 1 month ago and now

oil's volatility gauge, ovx, has also surged recently, though it remains below panic levels seen in early august.

note: the purple line above is the oil price trend, and the yellow line is the volatility

a comparison shows that ovx, the oil market's "fear index", is currently much higher than the u.s. stock market's "fear index" vix:

from the perspective of related markets, the current drop in oil prices seems to be quite instructive for some other related assets and even the federal reserve’s decision-making.for example, oil prices have been moving in lockstep with the dollar for quite some time now (largely because the united states has shifted from being an importer of crude oil to an exporter), so does this mean that the dollar will fall further?

note: the yellow line is the oil price, and the purple line is the us dollar trend

at the same time, as we have introduced this morning, the decline in oil prices is driving down the 10-year breakeven inflation rate in the united states. the federal reserve may have to face the risk of reducing inflation too low in the future...

if we put oil prices together with the 10-year u.s. treasury yield, the "anchor of global asset pricing", does their simultaneous decline mean that the federal reserve should accelerate the pace of interest rate cuts as soon as possible?

finally, we need to remind domestic stock investors that oil prices and the csi 300 index have been "good friends" for more than a year, and this has become quite obvious recently...