The OPEC+ Joint Technical Committee (JTC) and Joint Ministerial Monitoring Committee (JMMC) will be held on February 3rd and 4th. On February 2, market analyst Grant Smith quoted people familiar with the matter as saying that this week’s JMMC meeting is unlikely to propose new policy recommendations, and may not be discussed until the next ministerial meeting in early March. Although Saudi Arabia prefers to limit production, Russia is worried that supporting oil prices for too long will stimulate increased U.S. shale oil production. In addition, Iraq and the United Arab Emirates may also demand an increase in production to increase oil revenue. If the new U.S. President Biden relaxes sanctions against Iran, the latter’s oil production may also increase, which will become a new challenge for OPEC+.
Saudi Arabia’s voluntary production cuts buy time for OPEC+. OPEC+ may not need to adjust policies this week, but they must consider how long the production cuts will last
Saudi Energy Minister Prince Abdulaziz bin Salman promised in January that he would voluntarily cut production by 1 million barrels per day in the next two months to support the global oil market against the latest impact of the epidemic. Oil prices once rebounded to US$55 per barrel, which did not surge excessively, but increased the income of oil-producing countries.
Market analyst Grant Smith believes that although this eliminates the need for OPEC+ to adjust policy this week, they need to start considering the duration of the production cuts – as Iran may resume supply, this will cause certain impact.
The core dilemma of OPEC+ is the tense relationship between Saudi Arabia and Russia. While Saudi Arabia seeks to raise oil prices to cover government spending, Russia is also trying to regain market share.
Helima Croft, chief commodity strategist at RBC Capital Markets LLC., said: “Saudi Energy Minister Salman’s creed is that caution is a mistake, This has been proven to be correct. We may see the outlines of the debate next month.”
OPEC+ has determined to cut production by 7.2 million barrels per day starting in 2021 (approximately 7.2 million barrels per day globally). 7% of oil supply). When the epidemic broke out in the spring of 2020, these oil-producing countries announced significant production cuts, and they still maintain a certain scale of production cuts. The production cuts have proven effective, successfully reversing oil prices that dipped into negative territory in April 2020 and providing a financial lifeline to producers around the world, from small African countries to corporate giants.
However, resuming stopped production will be a delicate process. OPEC’s plans to increase production have been affected by troubled oil-producing countries.
Although OPEC+ planned to increase production by 2 million barrels per day in 2021, Saudi Arabia announced a voluntary production cut of another 1 million barrels per day as the resurgence of the epidemic threatened oil demand, thereby increasing restrictions. The intensity of output.
On February 3, OPEC+ will hold a JMMC meeting via video to assess the prospects of the oil market. According to representatives who asked not to be named, it is unlikely that new policy recommendations will be made at this JMMC meeting and may not be discussed until the next ministerial meeting in early March.
Bill Farren-Price, director of research firm Enverus, said: “Saudi Arabia’s production cuts have bought OPEC+ some time.”
OPEC+ faces challenges: many countries hope to relax production cuts, and Iran is expected to increase oil production after Biden takes office
At the JMMC meeting starting on Wednesday, OPEC+ will discuss what to do next. The Saudi energy minister’s preference to limit production has been borne out as the vaccine rollout has been rocky and some key vaccine-demanding countries have reimposed lockdowns due to the pandemic. Major global oil traders agree that the oil market will not recover unless air travel picks up in the third quarter.
On the other hand, Russia is worried that supporting oil prices for too long will be counterproductive, spurring investment in U.S. shale oil and a flood of new supplies, which will offset the efforts of OPEC+. At the meeting in January 2021, Russian Energy Minister Alexander Novak proposed increasing production and tried to dissuade Saudi Arabia from unilaterally reducing production.
Helge Andre Martinsen, senior oil market analyst at Norges Bank (DNB ASA), said that the OPEC+ meeting in March will be a fierce battle. If OPEC+ production cuts start to stimulate U.S. shale oil production again, but at the same time Russia is sitting on a lot of idle production capacity, Russia will consider this a huge failure.
Russia is not the only member state that may demand an easing of production cuts. Iraq is in the midst of an economic crisis and urgently needs to increase revenue from oil sales. The UAE is seeking to push for a benchmark oil contract that relies on adequate production. In 2020, the UAE briefly broke with Saudi Arabia because of its desire to increase production.
In addition, with the new US President Biden taking office, Iran is expected to increase its oil production. Biden is seeking to revive a nuclear deal that would lift U.S. sanctions on Iran and restore Iran’s production of nearly 2 million barrels a day. Iran’s oil exports have begun to climb as former President Trump’s “maximum pressure” policy on Iran ended.
However, US Secretary of State Antony Blinken said there is still “a long way to go” to reach an agreement. According to Royal Bank of Canada (RBC) economist Helima Croft:�As the two sides wrestle for leverage and Iran continues to advance its uranium enrichment activities, they may be heading for a new rupture rather than reconciliation. Instead of increasing oil production, she warned that markets may need to prepare for “geopolitical shocks.”
But if a deal is reached, OPEC+ will need to make a choice between cutting production further or watching efforts to deplete excess oil reserves go to waste. It is unclear how far Saudi Arabia will go to make way for the resurgence of its political nemesis.
Bill Farren-Price, director of research firm Enverus, said: “The growth of Iranian oil exports is another new challenge facing OPEC+. They may need to take this into account as early as possible when formulating their plans. A little.”
Based on the above news, we can see that Saudi Arabia voluntarily cut production by an additional 1 million barrels per day in February and March to help support oil prices and allow OPEC+ to temporarily relax. The tone suggests that there may be no need to adjust policies this week, and policies will be discussed at the next ministerial meeting in early March. However, OPEC+ still faces difficult choices in the future. Russia, Iraq and the United Arab Emirates hope to relax production cuts, and sanctions against Iran may be lifted after Biden takes office, leading to an increase in Iranian oil exports. These threats may limit the upside of oil prices, and investors need to remain vigilant. </p
