In the early morning of July 6th, Beijing time, global investors once again waited in vain. As the differences between Saudi Arabia and the United Arab Emirates have never been effectively resolved, the OPEC+ output control meeting, which has attracted global attention, ended without any results after being postponed several times.
As the global oil market continues to improve, oil prices have also hit new highs in three consecutive years. OPEC+ needs to increase production to seize market share, while also cooling down the hot oil market. There is a consensus among oil countries; however, the United Arab Emirates intends to further increase production, while Saudi Arabia, the leader of the OPEC+ organization, is opposed.
The OPEC+ ministerial meeting was originally scheduled to be held at 15:00 local time in Vienna on July 5, but as discussions outside the meeting still failed to resolve the differences between the UAE and other oil-producing countries, More than two hours later, Saudi Arabia and Russia jointly canceled the meeting.
The differences between Saudi Arabia and the UAE continue
The conclusion of previous large-scale production control agreements has been accompanied by negotiations and compromises, but this time the differences between Saudi Arabia and the UAE seem to be more acute.
This OPEC+ meeting was officially held on July 1, but was postponed several times due to the delay in reaching a final agreement. All parties participating in the meeting have agreed to a small increase in production, that is, from August this year to December this year, the organization will increase crude oil production by 400,000 barrels per day per month, and by the end of the year, the total increase in crude oil supply will be 2 million barrels per day.
However, Saudi Arabia insists that the production reduction agreement originally scheduled to expire in April 2022 should be extended to December 2022. The UAE believes that its actual crude oil production has been significantly underestimated. Unless OPEC+ accepts the UAE’s new production reduction calculation basis, the country will not agree to extend the time limit of the production reduction agreement.
After many days of back-and-forth, many market analysts believe that a compromise between the two parties may eventually be reached to appropriately increase production but not extend it; but what is puzzling is that currently Neither the UAE nor Saudi Arabia intends to give in.
As a staunch guardian of OPEC, Saudi Arabia prefers to maintain appropriate idle crude oil production capacity and play a mediating and buffering role in the global crude oil market; the United Arab Emirates is stepping up its efforts to increase oil and gas production and maximize Utilize domestic resources.
The current production reduction benchmark of oil-producing countries is linked to the output in October 2018. The production reduction benchmark of Saudi Arabia and Russia is 11 million barrels per day, which is equivalent to Saudi Arabia’s current crude oil production capacity. 91% of Russia’s current crude oil production capacity.
The UAE has increased investment in the upstream of the oil and gas industry in recent years, and its crude oil production capacity has increased significantly. Under the current agreement, the benchmark for measuring UAE production is 3.168 million barrels per day, but the country claims that its current actual production capacity is closer to 4 million barrels per day. According to data from energy information agency Argus, in April 2020, the UAE’s crude oil production capacity was close to 3.85 million barrels.
The Argus International Crude Oil Market Report revealed that the UAE’s proposal to modify the baseline was not recognized by OPEC+. This baseline adjustment will obviously trigger a more complex and lengthy baseline. negotiations, and the true crude oil production capacity of many member countries within the OPEC+ organization cannot be accurately verified.
The current OPEC+ meeting has ended, and the date of the next meeting has not yet been determined.
A critical moment for the crude oil market
Alan Gelder, Vice President of EMEARC Refining Department at Wood Mackenzie, told the 21st Century Business Herald that the current crisis of OPEC+ is not surprising. The organization performs best when facing major crises, but as oil demand slowly recovers, , the challenge to them becomes no longer urgent.
“The crux of the matter is the so-called more normal level of UAE crude oil production, and we hope that OPEC can resolve this issue by April 2022,” Alan Gelder said, “ But this process will be difficult and long.”
Beginning in March 2020, due to the spread of the new coronavirus epidemic around the world, energy demand dropped sharply; at that time, Saudi Arabia led the OPEC+ organization to reduce production. Negotiations, but the negotiations eventually broke down, and various oil-producing countries immediately began to increase production to compete for the market, and an untimely oil price war broke out.
Subsequently, international oil prices experienced a sharp decline, and severe market conditions brought oil-producing countries such as Saudi Arabia and Russia back to the negotiating table. Although Mexico made additional demands, Saudi Arabia, Russia Other countries did not continue to entangle with this country. In April 2020, an agreement was reached to reduce production by as much as 9.7 million barrels per day. The global crude oil market began to adjust and recover, and oil prices also slowly climbed from historic lows.
More than a year after the oil price crisis, times have changed, and today the crude oil market is facing the opposite situation: global crude oil demand has rebounded significantly, and supply is less than demand, resulting in tight supply and demand. . So far, both WTI crude oil and Brent crude oil futures have risen above $75/barrel, setting new highs in more than three years many times.
Vitol Group, the world’s largest independent oil trader, pointed out that even if OPEC+ reached an agreement to increase production, it would still not be able to meet the growing demand for crude oil in the future. Oil prices will continue to rise.
Han Zhengji, a crude oil analyst at Jinlianchuang, pointed out that on the whole, OPEC+ countries are still continuing their previous production restriction agreement. According to previous market expectations, energy demand will decline in 2021. Recovery will continue in the first half of the year. In the absence of an increase in supply or a slight increase in supply, the crude oil market will continue to be in short supply.
Wang Nengquan, chief economist of Sinochem Energy Co., Ltd., is accepting the 21st centuryIn an interview, a reporter from the Economic Report said that excessively high oil prices will stimulate the development of the alternative energy industry and will also be detrimental to the recovery of the global economy. The price of 60-70 US dollars per barrel is a more suitable range.
Jin Lianchuang’s analysis believes that we should not be too blind and overly optimistic about the subsequent trend of the global crude oil market; with the existence and spread of the Dleta mutant strain, there are variables in the current epidemic prospects in various countries , the outlook for crude oil demand is also highly uncertain; once OPEC+ resumes negotiations and reaches an agreement to increase production, it will also suppress oil prices in a short period of time.
The prospect of OPEC+ is clouded
Saudi Arabia launched an oil price war in 2014 to suppress U.S. shale oil. The plunge in oil prices has severely damaged many shale oil and gas companies in North America. However, with the recovery of the North American shale oil and gas industry in recent years, Saudi Arabia and Russia’s OPEC+ have a greater influence on the global oil market. The influence is gradually waning.
Until the emergence of the new crown epidemic in 2020, Saudi Arabia and Russia led the OPEC+ organization to demonstrate their control over the global oil market. Today, the OPEC+ organization is still one of the most important factors influencing oil prices, while the focus on shale oil and gas drilling in the United States has shifted to paying dividends to shareholders and reducing corporate debt.
Within OPEC, changes and disagreements also worry Saudi Arabia. The UAE and Saudi Arabia have joined forces in the Middle East for many years to exert regional military and financial influence. However, as national interests have become more prominent, differences between the two sides on crude oil production, Yemen issues, Israel, and epidemic management are gradually becoming more prominent. For OPEC’s future and the prospects for the current output-limiting agreement have also become more complicated.
In 2020, the UAE even threatened to withdraw from OPEC. In January 2019, Qatar officially withdrew from OPEC; in October of the same year, Ecuador announced its withdrawal from OPEC.
If the UAE eventually withdraws from OPEC, the already tight crude oil market may be squeezed again, and crude oil prices will soar again; on the other hand, if the production restriction agreement eventually collapses If countries increase their capacity to produce crude oil, the scene in March last year will be repeated. The oversupply of crude oil caused prices to plummet. This is something that no one in the market wants to see again.
Wang Nengquan told the 21st Century Business Herald that Ecuador’s crude oil production capacity is low. Previously, due to the domestic economic downturn and financial difficulties, it finally chose to withdraw from OPEC. Qatar’s natural gas production was significantly higher than its crude oil production. The withdrawal of both parties did not have much impact on OPEC.
“Although the UAE is the third largest oil producer in OPEC, the focus of the dispute between the UAE and Saudi Arabia is mainly on the adjustment of the crude oil production baseline, which is still a small issue for the OPEC+ organization. Friction.” Wang Nengquan said.
The Argus International Crude Oil Market Report also pointed out that it is not the first time for market speculation that the UAE will withdraw from OPEC, but sources believe this is unlikely to happen. </p