Oil prices return to the 5 yuan era! When will the adjustment start? What impacts will it have? Attached is the adjusted price!

This year is an extraordinary year. Various companies, growers, breeders, etc. have been affected by the epidemic, resulting in sluggish sales and price reductions. Recently, oil prices have returned to the 5 yuan era. So what happened to oil prices returning to the 5 yuan era? When will the downward adjustment begin? How much is it per liter after adjustment? Will it rise later?

Oil price returns to 5 yuan era

1. What happened to oil prices returning to the 5 yuan era? When will the downward adjustment begin? How much is it per liter after adjustment?

Affected by the recent plunge in global oil prices, domestic refined oil prices have seen a sharp drop. The National Development and Reform Commission stated that from 24:00 on the 17th, the maximum retail price limits of gasoline and diesel will be lowered by 1,015 yuan/ton and 975 yuan/ton respectively. After the price cut, gasoline prices will return to the long-lost 5 yuan era.

Specifically in Beijing, the price of No. 89 gasoline was adjusted from 5.92 yuan per liter to 5.15 yuan, a decrease of 0.77 yuan; the price of No. 92 gasoline was adjusted from 6.32 yuan per liter to 5.50 yuan, a decrease of 0.82 yuan; the price of No. 95 gasoline was adjusted from 6.73 yuan per liter to 5.86 yuan, a decrease of 0.87 yuan; and the price of No. 0 diesel was adjusted from 5.98 yuan per liter to 5.13 yuan, a decrease of 0.85 yuan.

This reduction is the largest drop since the new refined oil pricing mechanism was introduced in 2013. Based on the estimated capacity of a general private car's fuel tank of 50 liters, filling up a tank of 92-grade gasoline will cost 41 yuan less, significantly reducing travel costs. The last time oil prices were at 5 yuan was in November 2016.

On March 6, negotiations on a new round of production cut agreement between Saudi Arabia and Russia broke down, pushing international oil prices into the abyss. The level of domestic oil prices mainly depends on the trend of crude oil prices in the international market. Peng Shaozong, deputy director of the Price Department of the National Development and Reform Commission, said that in the past ten working days, international oil prices have fallen sharply, and the average level has fallen below the regulatory lower limit of US$40 per barrel, commonly known as the "floor price." Domestic refined oil prices will be significantly reduced according to the mechanism to the corresponding crude oil price level of USD 40, and the part below USD 40 will no longer be reduced.

Why is the oil price back to the 5 yuan era?

2. Will oil prices rise in the later period after returning to the 5 yuan era?

Analysts believe that judging from the current situation of crude oil, a substantial increase in crude oil supply is inevitable under the price war, while crude oil demand continues to be impacted by the COVID-19 epidemic. The imbalance between supply and demand in the crude oil market has intensified, and oil prices may be under long-term pressure. Liu Biao, an analyst at Zhongyu Information, believes that international oil prices have been struggling below the "red line" of $40 per barrel for more than a week, and there is currently no sign of leaving this price range. If this situation continues, the next round of price adjustment will most likely stop because the "floor price" is broken.

Regarding the future trend of oil prices, Liu Manping, an expert from the China Oil and Gas Industry Think Tank Alliance, believes that, on the one hand, although Saudi Arabia and Russia have low production costs, their fiscal balance is highly dependent on oil prices. In 2020, Saudi Arabia's break-even oil price was US$61 per barrel, while Russia's was US$45 per barrel. "It can be seen that both countries are unable to afford the long-term continuation of the current oil price level." He analyzed that the price war between Saudi Arabia and Russia will have an impact on the development of the US shale oil industry. Therefore, the United States will not take a sit-and-see attitude towards oil prices. It is very likely that for the sake of stabilizing the US dollar system, it will put pressure on Saudi Arabia to cut production, or prompt US shale oil to join in the production cuts, and ultimately achieve a three-legged tripod among the world's three largest oil-producing countries. By then, international oil prices will be expected to stop falling and rebound.

"The current low oil price will continue for some time and may rise back to above $40 per barrel after May," Liu Manping judged.

What impact will the return of oil prices to the 5 yuan era have?

3. What impact will the oil price returning to the 5 yuan era have?

Crude oil has special financial attributes, and a series of financial derivatives are linked to crude oil. As the price of physical oil fell, a number of commodities in the US futures market also began to plummet, and even affected futures markets in various countries. It is inevitable that these impacts will be transmitted to the stock market through derivatives.

That year, the United States and Saudi Arabia decided to use the US dollar as the sole pricing currency for oil, and other OPEC members followed suit. The status of the "petrodollar" system was established from then on. In the past, the combination of "oil-dollar-US debt" has enabled the United States to accumulate a large amount of wealth globally, while meeting its own needs for continuous debt issuance. Now that oil prices have plummeted, the risk factor of this system will be magnified exponentially, and the "petrodollar" that the United States has relied on for many years is in jeopardy.

May provide support for RMB appreciation

Compared with the huge pressure that changes in crude oil prices have brought to the European and American markets, some researchers believe that the current sharp drop in crude oil prices will have limited impact on my country's interest rate fluctuations and will not cause large fluctuations in the current monetary policy. Instead, it may provide support for the appreciation of the RMB. At the same time, as oil price volatility last week approached the peak during the 2008 financial crisis, it is expected that the interim high point of the interest rate gap between China and the United States may reappear.

The decline in international crude oil prices is expected to have the most direct impact on domestic inflation levels. From January to February this year, the national consumer price index (CPI) rose by 5.3% year-on-year, an increase of 3.7 percentage points from the same period last year, reaching a record high in recent years. However, the decline in international crude oil prices will push CPI down.

Tang Jianwei, chief researcher at the Financial Research Center of the Bank of Communications, said: "my country has a large demand for upstream primary products such as crude oil and iron ore, and its external dependence is also high. The continued decline in international crude oil and bulk commodity prices will significantly reduce the pressure of imported inflation in China."

Experts predict that due to weak demand and a sharp drop in international oil prices, the CPI growth rate may drop significantly after the domestic epidemic is fully under control. If inflationary pressure is reduced, it will free up space for my country's macroeconomic policies to promote economic development, which will help my country's economy achieve restorative growth.