On Saturday, the 179th OPEC Conference was held via video conference. OPEC+ countries agreed to cut production for an additional month, representatives said.
On Saturday, the 179th OPEC Conference was held via video conference.
The core of this meeting is: whether OPEC+ will continue to implement the current production reduction of 9.7 million barrels per day until July or later.
Under the current production reduction agreement, OPEC+ has agreed to reduce production by an average of 9.7 million barrels per day (accounting for 10% of global crude oil production) from May 1 for a period of Two months; the extent of production cuts will be reduced starting in July; the production reduction in the second half of the year will be adjusted to an average of 7.7 million barrels per day.
Not long after the conference started, good news came from the front line – representatives said that OPEC+ countries agreed to reduce production for an additional month. OPEC+ will evaluate the market at the end of June and may further extend the production reduction agreement at that time. In addition, OPEC+ members will agree to launch a compensation mechanism for fraud in production reduction quotas.
The OPEC+ draft statement shows that record oil production cuts will continue until the end of July, and countries that cannot achieve 100% production cuts from May to June will need to Compensation will be made from July to September. Joint Ministerial Monitoring Committee (JMMC) meetings will be held monthly until December 2020.
Many oil-producing countries are willing to “cooperate”
Some people lamented that OPEC will start on Friday +’s negotiations were “hanging up all the way”, from finalizing the agenda of the meeting to announcing the decision to extend production cuts, in just one day.
OPEC+ has experienced many reversals due to internal disagreements, and the market was even worried that the oil price war might restart. Nowadays, many good news are being bombarded intensively, and the good news seems to come too fast.
In fact, the reason why the plot developed so quickly is because of the oil-producing country-Iraq, which has been greatly annoyed by Saudi Arabia and Russia due to its “cheating” in production cuts. Countries such as China and Nigeria have expressed their willingness to abide by their production reduction commitments.
Nigeria expressed support for OPEC’s production reduction compensation plan and will compensate for oil production exceeding the quota during May-June.
Even Iraq, which was once tough and had the lowest production reduction implementation rate, said that despite the financial pressure, it would still confirm its production reduction commitment to OPEC+. Iraq reiterated that it has fully complied with the OPEC+ production reduction agreement.
In addition, Saudi Arabia, the United Arab Emirates, Kuwait and Oman will voluntarily reduce production by a total of 1.2 million barrels per day in June. The Algerian Energy Minister praised this action.
When is it appropriate to extend production cuts: a Month, half a year?
As the output data of OPEC+ member countries in May are released one after another, the market can re-evaluate OPEC+’s decision to extend production cuts in the future.
According to the latest market news, the OPEC+ Joint Ministerial Supervision Committee will evaluate the oil market on June 18 and propose whether it is necessary to continue to extend production cuts to 8 End of month advice. The ministerial oversight committee will even agree to meet every month thereafter to assess market conditions, sources said.
At present, many oil-producing countries or oil producers have revealed their willingness to further extend production cuts:
Ahead of the meeting, sources said Saudi Arabia had been considering extending production cuts into August or even December.
According to RIA Novosti, Fedun, Vice President of Russia’s Lukoil, said that the OPEC+ agreement should be extended for two months.
Recently, the fundamentals of the oil market have shown signs of improvement. The policies of various countries to restart their economies have boosted demand expectations. Oil prices have recovered all the losses since the oil price war. Why does production Do oil countries still hope to continue to significantly reduce production?
It is not difficult to understand that the actual progress of demand recovery, the biggest positive factor in the oil market, may be slower than imagined.
There are reports that although crude oil was destocked last week, it was actually just a transfer of upstream crude oil inventories to downstream refined oil inventories, and refined oil inventories were significantly accumulated. ; In addition, refinery profits are at a low level, which will inhibit crude oil consumption in the later period. Finally, the trade situation remains full of uncertainty, which will also affect the outlook for crude oil demand.
Next, pay attention to these 4 oil-producing countries
Although the extension of production cuts has been finalized, However, foreign media pointed out that even if an additional month of production cuts is finally finalized, it does not mean that OPEC+ members will comply as promised.
First of all, Mexico, which was the toughest at the April meeting, apparently refused to commit to continuing production cuts.
There are reports that this means that after July, OPEC+ members may have to share Mexico’s production reduction quota to implement its 9.7 million barrels per day production cut. postpone. Considering that Saudi Arabia, the United Arab Emirates and Kuwait have previously agreed to cut production by an additional 1.2 million barrels per day in June, they may be unwilling to help Mexico “cover the bottom line” in July.
Second, Iraq lacks the credibility to implement its agreed production cuts.
Although OPEC representatives said that Iraq has submitted a request to OPEC��Committed to beginning emergency production cuts to fully meet its production reduction quota. But Iraq faces a political rupture and a potential financial hit if it forces IOC partners to shut production, making it unlikely that the country will fulfill its pledge to continue production cuts, let alone further cuts.
Medley Global Advisors analyst Mohammad Darwazah said:
“Require Iraq to The promise of compensating for a production cut of 1 million barrels per day in a few months is almost impossible to achieve, and the market will not consider it credible.”
It is worth noting that, according to S&P Global, Libya is ready to restart crude oil production of nearly 400,000 barrels per day, which undoubtedly increases the complex tasks faced by OPEC+ and clouds the prospects for production cuts.
Efforts by OPEC+ to reduce production are being obliterated not only by internal members but also by the United States. As oil prices recover, some shale oil producers have begun to resume partial production starting from Tuesday. There is no doubt that the meeting will be closely watched by US officials.
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