Her report is mainly divided into four parts:

First, macro and fundamentals: Moving from resonance to confrontation. Ms. Xiao analyzed the past energy market trends in the context of the global macro environment. She pointed out that after the interest rate hikes in Europe and the United States, the long-term holding logic of commodities has changed. Institutions have started to price in expectations of a recession in Europe and the United States. In the long run, the price differentials in oil cracking will gradually return to normal.

Second, differentiation in the energy rebalancing process. Over the past three years, coal prices have rapidly declined while crude oil has remained in a range-bound. In terms of supply elasticity, crude oil is weaker than natural gas and coal. In terms of demand elasticity, the higher the combustion attribute, the greater the demand elasticity. Crude oil has weaker demand elasticity. In terms of carbon neutrality, after considering factors such as ESG, the investment cost of crude oil is higher.

Third, the struggle of oil-producing countries in the post-sanctions era. The market has already priced in "no production cuts" for Russian crude oil production. Russia's inclusion in the sanctioned countries has actually provided higher survival space for sanctioned oil producers. The supply of Iranian oil has shifted from off-market to on-market, and while the lifting of the Iran sanctions does not change the export trend in the short term, it will impact the valuation. Meanwhile, there has been a relaxation of sanctions on Venezuela, leading to changes in trade flows. OPEC's May production verified that the production cuts were less effective than expected, and the export volume did not reflect a high compliance rate.

Fourth, valuation and summary. The continuous decline in pricing and the return of oil cracking differentials to neutral positions make it difficult to see the possibility of a breakthrough in the upper boundary for crude oil. There are two anchors that the market wants to refer to: OPEC's fiscal breakeven point (Brent 70-75), which, against the backdrop of weak demand and the impact of low-priced oil from sanctioned countries, voluntary high compliance rates for production cuts are not stable. The agreed prices for the U.S. Strategic Petroleum Reserve (WTI 68-72) need to be observed for actual stockpiling actions to occur.