Oil prices rebounded significantly in May, indicating that OPEC’s production cuts played a big role. But now, OPEC+ will face a choice again.
According to the latest news, OPEC+ member states are close to reaching an agreement to change the date of the next conference from 6 June 9th and 10th will be moved forward to June 4th. Three OPEC+ sources said Russia would not oppose the proposal. The most important agenda of this meeting is the implementation plan for the next phase of the production reduction agreement.
Oil prices have just improved, and OPEC+ is in a hurry to hold a meeting. What surprises will happen at the meeting?
Saudi Arabia wants to deepen production cuts, what does Russia think?
So far, the results of OPEC+ cooperation are too good to be true. In the first month of the formal implementation of the production reduction agreement, all 20 OPEC+ member states have reduced production to varying degrees. Outside of OPEC+, EIA data shows that U.S. oil production fell by 1.6 million barrels per day in two months, a drop of 12%; oil production in the Canadian province of Alberta also dropped by 1 million barrels per day, with production cuts The range is as high as 25%.
With the joint efforts of global oil-producing countries, the oil market is making strides towards the goal of balancing supply and demand, and everything is Development in a good direction. However, just because oil prices have rebounded and crude oil inventories have also dropped significantly, there seem to be different voices within the OPEC+ production reduction alliance.
Russian Energy Minister Novak said last week that the global crude oil market is expected to reach a balance between supply and demand in June or July, driven by the dual benefits of significant production cuts and rising demand. This means that now is the time to reconsider the next phase of production cuts.
Coincidentally, OPEC members such as Saudi Arabia also intend to adjust their production reduction plans. But embarrassingly, the plans of the two leaders of the production reduction alliance are completely opposite:
[Russia’s attitude is that since demand has steadily recovered, it is reasonable to gradually relax production restrictions. Russia hopes to relax production reduction quotas from July, which is in line with OPEC+’s previous plan. Saudi Arabia believes that the oil market is not as prosperous as it appears on the surface. Market news pointed out that Saudi Arabia is seeking to reach an agreement with some other OPEC oil-producing countries, hoping to extend the current plan to reduce production by 9.7 million barrels per day until December this year. 】
Does this scene seem familiar?
[Yes, before the OPEC+ conference was held in March this year, Saudi Arabia and Russia also had differences over the implementation of the production reduction plan and subsequent adjustments. We all know the final result. Negotiations between the two parties broke down and Saudi Arabia launched an oil price war. Oil prices have still struggled to recover. ]
As for the reason for the disagreement, it is still the same old problem – the major oil-producing countries have different expectations and demands for oil prices. For Saudi Arabia, the current oil price hovering around $30 is not enough. Moreover, Saudi Arabia has spent a lot of money to support the economy, and its foreign exchange reserves have dropped significantly. At this critical moment, Saudi Arabia’s dependence on energy revenue has never been higher.
[Data show that Saudi Arabia’s foreign exchange reserves fell by US$24.7 billion in April. Saudi Finance Minister Mohammed Al-Jadaan issued a statement over the weekend saying that the government’s decline in March and April Approximately US$40 billion in foreign exchange reserves have been transferred to sovereign wealth funds in the hope that they can be used to dip into the stock market. However, the outcome of the dip is unknown. Data from the IMF shows that Saudi Arabia’s fiscal deficit will expand to nearly 13% of GDP this year. 】
If Saudi Arabia wants to provide sufficient funds for domestic economic construction, Saudi Arabia must allow oil prices to rise as soon as possible, so take advantage of the oil market It is not difficult to understand that the plan to deepen production cuts has been proposed with good recovery momentum. But the problem is that Russia does not seem to have such high requirements for oil prices. This difference could not be bridged at the March meeting, and now, it may be difficult to achieve a breakthrough.
The most likely outcome: everything remains the same
Of course, Different from the depressed global economic situation in March, European and American countries have now come out of the trough one after another. Some analysts pointed out that if Russia does not agree to deepen production cuts, Saudi Arabia will not be as tough as before. As long as the major oil-producing countries can complete the current production reduction tasks, it will be a great benefit to the oil market.
So one month after the production reduction agreement came into effect, how have the major oil-producing countries completed their production reduction tasks?
What worries Saudi Arabia is that it seems that it was not completed very well.
A Reuters survey found that OPEC oil production did indeed fall to a low in nearly 20 years in May. The average daily output of the 13 member countries this month was 24.77 million barrels, which was revised down from April. Daily production decreased by 5.91 million barrels.
However, Petroo Logistics CEO Daniel Gerber told Reuters that judging from the crude oil supply promised by OPEC oil-producing countries to buyers, the actual oil production of many countries is far away. Higher than production cut agreement��Required level.
[“The survey found that as of May, the overall production reduction implementation rate of OPEC member states was only 74%. Among them, Iraq’s production reduction implementation rate was only a pitiful 38%, and Nigeria’s was even lower. As low as 19%, at the bottom among OPEC members.”]
For some producers, the temptation to increase production is indeed tempting, but the short-term recovery in oil prices It should not be taken as a sign of easing restrictions – especially since the current production cuts are achieved with additional voluntary production cuts by some oil-producing countries.
[Earlier in May, Saudi Arabia decided to further cut production in June based on the OPEC+ agreement. This could remove 1.2 million barrels per day of oil supply from the market and bring Saudi oil production down to 7.5 million barrels per day in June, the lowest level in the past 20 years. 】
Although Saudi Arabia may not insist on Russia agreeing to deepen production cuts as before, if OPEC+ members dare to ask for relaxation of restrictions even if they are unable to complete their production reduction tasks. , Saudi Arabia may not agree easily.
Demand is sluggish, oil price of US$40 is still out of reach
Considering that the production reduction agreement has only been officially implemented for a month, it is understandable that countries need more time to adapt. However, in addition to the implementation rate of production cuts, the lower-than-expected demand recovery is also a problem that cannot be ignored.
In fact, in most Asian regions outside the United States, Europe and China, the argument of demand recovery is untenable.
[Take India, the world’s third largest crude oil consumer, as an example. The country’s current fuel consumption is about 40% lower than the same period last year, which is similar to the year-on-year decrease in fuel consumption in the United States. . Judging from the EIA report over the past month, total demand for U.S. crude oil is still about 25% lower than the same period last year. In Europe, fuel demand in European countries such as Spain and Italy has been hit hard and will take some time to recover. ]
Tom O’Connor, senior director of oil markets at global energy consulting firm ICF, said that in the final analysis, the decisive factor in crude oil demand is fuel demand. If the underlying demand slump persists for any longer, market optimism could quickly dissipate.
In this case, what is the outlook for oil prices? Piper Sandler chief technical analyst Craig Johnson pointed out that $33 is the strongest support level for WTI crude oil in the near future, but if it wants to break through the $40 mark, it must break through the 200-day moving average, which is still very large for the current oil price. challenge.
According to a Reuters survey, the median expectation of 43 analysts for the average price of WTI crude oil in 2020 is At $32.78 a barrel, it was roughly the same as last Friday’s closing price. The average price of Brent oil this year is expected to be US$37.58 per barrel, which has improved significantly from the April forecast. However, in general, in the view of analysts, oil prices exceeding US$40 are still out of reach.
The time to test unity has arrived
According to the previous agreement reached by OPEC+, the production reduction amount will be reduced After July, Russia has every right to relax production reduction restrictions in accordance with the original agreement.
[The first phase: starting on May 1, 2020, lasting for two months, with a total production reduction of 9.7 million barrels per day. The second phase: from July 1 to December 31, 2020, the total production reduction will be 7.7 million barrels per day. The third phase: from January 1, 2021 to April 30, 2022, the total production reduction will be 5.8 million barrels per day. ]
In other words, if Russia relaxes production reduction restrictions in July, daily crude oil supply will increase by 2 million to 4 million barrels compared with the current level.
In a phone call last week between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, the two countries agreed to coordinate with each other. After reaching a hard-won agreement to cut production in April, it is now time to test the unity of the OPEC+ production reduction alliance. In order to ensure that the rebound in oil prices is not a flash in the pan, close cooperation between Saudi Arabia and Russia is very important. </p
