The 20th Ministerial Meeting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries concluded recently. Despite the uncertainty caused by the epidemic, all parties have decided to continue to implement the gradual increase in production plan reached in July and are optimistic about the recovery of future energy demand.
Tamas Varga, senior market analyst at crude oil broker PVM Oil Associates, said in an interview with China Business News that as excessive production increases are not in the interests of oil-producing countries, OPEC+ rejected the United States’ request to increase production faster, and maintaining the current tightly balanced supply and demand pattern is still the best choice.
OPEC+ reiterates the importance of unity
According to the previous agreement reached by OPEC+ , each member country will release 400,000 barrels per day of production capacity month by month starting from August until the end of the year. At the same time, the agreement that originally expired in April 2022 will continue to be extended to December of the same year.
However, international oil prices fluctuated violently after the oil-producing group reached an agreement. The rapid spread of the “Delta” mutant strain and the news of holdings increased triggered concerns about the imbalance between supply and demand. , coupled with the U.S. government’s pressure on countries to further increase production, the two major oil contracts once fell into the bear market quagmire in mid-to-late August. However, Hurricane Ida hit the Gulf Coast last week and crude oil quickly rebounded by more than 10% in just one week.
The latest statement released by OPEC’s official website shows that all parties have temporarily rejected requests for further expansion of production. The statement emphasized that although the impact of the new coronavirus epidemic continues to create some uncertainty, as the economic recovery accelerates in the future, the OECD’s crude oil inventories are expected to continue to fall.
OPEC Statement
OPEC+ official statistics stated that the overall production reduction in July The fulfillment rate is 110%, continuing the favorable situation in which all parties have united to reduce production. In view of the current oil market fundamentals and consensus on its prospects, the meeting decided to continue to implement the production adjustment plan and monthly production adjustment mechanism previously approved by all parties, and increase the total monthly production in October 2021 by 400,000 barrels per day as planned.
OPEC+ reiterated the need to continue consultations and closely monitor market fundamentals, and to maintain the current monthly meeting system. A reporter from China Business News noticed that, slightly different from the July meeting statement, the compensation period for production reductions for countries that have not yet completed their quotas has been extended from the end of September to the end of December, and relevant countries need to submit compensation plans before September 17. According to the schedule, the next ministerial meeting will be held on October 4.
Just three weeks ago, high oil prices and inflationary pressures prompted the United States to ask Saudi Arabia and other countries to continue to increase production. U.S. National Security Advisor Jake Sullivan said at the time that the United States Founder is negotiating with OPEC+ members on the importance of competitive markets in pricing. Competitive energy markets will ensure reliable and stable energy supplies, and the alliance of oil-producing countries must do more to support the recovery. If left unchecked, rising gasoline prices could harm the ongoing global recovery.
Varga told China Business News that although the “Delta” mutant strain is spreading rapidly around the world, OPEC is still in control of the situation in terms of oil supply and can make decisions based on the actual situation. Adjustment of production plans and the potential impact of excess production on oil prices are not in the interests of all countries, so they rejected the U.S. request.
How will the balance of supply and demand change?
The resurgent epidemic factors have disrupted The originally optimistic energy demand outlook and the potential release of production capacity in oil-producing countries may also bring many uncertainties to the market.
According to the latest estimates from the OPEC+ Joint Technical Committee (JTC), global oil demand is expected to grow by 5.95 million barrels per day this year, resulting in a supply gap of 900,000 barrels per day in 2022. Global oil demand will continue to grow by 4.2 million barrels per day, but as the organization and countries outside the organization gradually increase production, the market will then have excess production capacity of 1.6 million barrels per day. At the same time, the OECD’s commercial oil inventories will remain below the 2015-2019 average level until May next year, and then inventory levels will gradually recover.
It is worth mentioning that the JTC mentioned another scenario in the report, which assumes that demand growth is lower than the baseline case and supply growth from non-OPEC countries is higher than the baseline. Condition. In the worst-case scenario, the world will have 4.5 million barrels per day of excess production capacity in 2022. In the previous monthly market report released by OPEC, the organization has mentioned the possibility of non-OPEC oil-producing countries increasing production more than expected, especially in the current more favorable market environment where oil prices are still at a three-year high.
Nowadays, U.S. shale oil is expected to make a comeback. The recent mergers and acquisitions of many energy giants seem to be preparing for a new round of production capacity release. The active drilling platforms of oil services company Baker Hughes The number has returned to the 400 mark. According to data released by the U.S. Energy Information Administration on Wednesday, U.S. crude oil production increased by 100,000 barrels per day last week, reaching 11.5 million barrels, the highest level since May 2020. As the world’s largest oil consumer, the epidemic has not caused substantial damage to demand in the United States. In fact, the production capacity of U.S. refineries is close to 22 million barrels, returning to the level of March last year.
Is the U.S. shale oil recovery sustainable?
With At the same time, the progress of negotiations on the Iran nuclear agreement is related to the movement of more than 1 million barrels of crude oil per day.Xiang, the United States and Iran have previously held multiple rounds of indirect talks in an effort to restore the 2015 nuclear agreement aimed at controlling Iran’s nuclear development. Iranian Oil Minister Zanganeh said on Wednesday that Iran is ready to increase oil production to the highest possible level once the illegal unilateral sanctions imposed by the U.S. government are lifted to compensate for the huge losses caused by the U.S. unilateral sanctions.
Varga believes that the recent rise in oil prices has benefited from multiple positive factors. In addition to the continued threat to the Mexican coast during the hurricane season, the U.S. Food and Drug Administration (FDA) fully approved the Pfizer vaccine. At the same time, the Federal Reserve’s expectation of reducing its asset purchase plan within the year suppressed the dollar and also provided support for oil prices.
However, the future upside of oil prices remains to be seen. Varga said that the uncertainty of the epidemic factors cannot be eliminated for the time being, and at the same time, the Federal Reserve’s final announcement of a reduction plan may also boost it in the short term. The U.S. dollar has suppressed oil prices, and of course the Iranian negotiation process is also worthy of attention.
Overall, he is cautiously optimistic about the market prospects. He believes that with the spread of vaccination, the decline of crude oil inventories and the eventual control of the epidemic The expectation is expected to boost investor confidence. After successfully regaining the US$70 mark, Brent crude oil is expected to return to around US$75/barrel within the year. </p
