Yesterday’s G20 Energy Ministers’ meeting attracted much market attention. It is understood that this meeting was originally planned to start at 20:00 and end at 22:20 on April 10, Beijing time. However, because negotiations were blocked again, the meeting was extended, and Mexico once again became a “spoiler.”
Mexican President Lopez said that in this crisis, we must fulfill our commitment to reduce crude oil production, and Mexico agreed to temporarily reduce production. But Lopez also said that we cannot achieve the same production reduction as other countries, and cannot reduce production by 23% like other countries. Mexico agreed to reduce production by 100,000 barrels per day, but OPEC+ hopes that Mexico will first reduce production by 400,000 barrels per day, and then Then it was reduced to 350,000 barrels per day.
The joint communique of the G20 Energy Ministers’ Meeting released after the meeting did not directly mention production cuts, but mentioned “other measures” to ensure balance. The communiqué shows that the G20 energy ministers recognized that the spread of the new coronavirus epidemic has exacerbated the imbalance between energy supply and demand and the instability of the energy market, and has directly had a negative impact on industries such as oil and natural gas.
The communiqué states that countries have reached consensus on the importance of energy markets in responding to the epidemic and in the economic recovery phase, and have committed to working together to formulate collaborative policy responses to ensure the stability of the energy market and will continue to do so. Maintain close cooperation with the entire energy industry to ensure that the energy system is more adaptable and flexible in response to future emergencies. The G20 will establish a short-term task force to formulate coordinated responses and make policy recommendations as needed.
Sources said that the dialogue between OPEC+ and Mexico will continue until Saturday, as Saudi Arabia and other oil producers are still trying to reject Mexico’s plan to cut production at a lower standard than OPEC+ requires. Although the production reduction agreement that the market expected was not reached, it can be seen from the speeches of the energy ministers of Saudi Arabia, Russia and the United States at the meeting that they all hope to stabilize the oil market and end the decline in oil prices.
The Saudi Ministry of Energy said that Saudi Energy Minister Abdul Aziz called for affordable energy supply at the G20 Energy Ministers’ meeting. Saudi Energy Minister Abdul Aziz said that affordable, reliable and accessible energy supply is a necessary basic service to help the economy.
U.S. Energy Secretary Brouillette said that the decline in oil prices must be ended to stabilize the market. By the end of the year, U.S. crude oil production will fall by about 2 million barrels per day. Some models suggest U.S. production could fall by as much as 3 million barrels per day. The United States called on all countries to use “all means” to help reduce crude oil supplies.
Russian Energy Minister Novak delivered a speech, saying that the spread of the new coronavirus affects the global economy, and the outbreak requires us to take quick joint action. The G20 should act in a spirit of cooperation and support the efforts of OPEC+. G20 countries must come up with effective ways to monitor and respond to energy market conditions.
Market participants reminded that investors should pay attention to Saudi Arabia’s official oil selling price (OSP) for May announced on Saturday.
The G20 Energy Ministers’ meeting ended inconclusively, and Mexico once again became a “spoiler”
This G20 Energy Ministers video meeting was originally planned to be held in Beijing time It started at 20:00 on April 10 and ended at 22:20. However, because negotiations were once again blocked, the meeting was extended, and Mexico once again became the “spoiler.” The joint communique of the G20 Energy Ministers’ Meeting did not directly mention production cuts, but mentioned “other measures” to ensure balance. Sources said talks between OPEC+ and Mexico will continue until Saturday, with Saudi Arabia and other oil producers still trying to reject Mexico’s plan to cut production at a lower level than OPEC+ requires.
Mexican President Lopez said that in this crisis, we must fulfill our commitment to reduce crude oil production, and Mexico agreed to temporarily reduce production. But Lopez also said that we cannot achieve the same production reduction as other countries, and cannot reduce production by 23% like other countries. Mexico agreed to reduce production by 100,000 barrels per day, but OPEC+ hopes that Mexico will first reduce production by 400,000 barrels per day, and then Then it was reduced to 350,000 barrels per day.
In addition, Lopez also said that he had a phone call with President Trump on Thursday, and Trump generously said that he would help Mexico bear an additional production reduction of 250,000 barrels per day. quota. Mexico has been working hard to increase production. Mexico’s crude oil production has been declining for 14 years, which is why it resists production cuts. Mexico will move forward with plans to refining its oil domestically and eventually process (process) all of its crude oil domestically.
Although the production reduction agreement that the market expected was not reached, it can be seen from the speeches of the energy ministers of Saudi Arabia, Russia and the United States at the meeting that they all hope to stabilize the oil market and end the decline in oil prices. .
The Saudi Ministry of Energy said that Saudi Energy Minister Abdul Aziz called for affordable energy supply at the G20 Energy Ministers’ meeting. Saudi Energy Minister Abdul Aziz said that affordable, reliable and accessible energy supply is a necessary basic service to help the economy.
U.S. Energy Secretary Brouillette said that the decline in oil prices must be ended to stabilize the market. By the end of the year, U.S. crude oil production will fall by about 2 million barrels per day. Some models suggest U.S. production could fall by as much as 3 million barrels per day. The United States called on all countries to use “all means” to help reduce crude oil supplies.
Russian Energy Minister Novak delivered a speech, saying that the spread of the new coronavirus has affected the global economy.
In the view of Gu Jintao, director of the Futures Research Department of Bank of China International, although the meeting on the 9th reached a draft for OPEC+ production reduction, it should have been good for market sentiment. However, since a lot of true and false news came out at the meeting on the 9th, one of the widely circulated news said that OPEC+ intends to reduce production by 20 million barrels per day. The current preliminary agreement is to reduce production by 10 million barrels per day, which is undoubtedly low. in line with market expectations.
According to Gu Jintao, the benchmark for the current production reduction draft is October 2018, and the benchmark level for Saudi Arabia and Russia is 11 million barrels per day. In fact, Saudi Arabia’s production in March was less than 10 million barrels per day, and Saudi Arabia reduced the extent of its production cuts in disguise, further weakening the effect of this production reduction agreement.
He also said that although Mexico’s production is not large, only 2 million barrels per day, it will have a small impact on the production reduction agreement. However, there is news that whether this round of agreements can be implemented mainly depends on whether Mexico can reach a consensus with OPEC+ and begin to reduce production as required. Previously, Mexico insisted that it would be difficult to reduce crude oil production. In fact, Mexico has been working hard to increase production.
The demand side is critical
As for when will oil prices stop falling and rebound? Market participants said they may have to wait until the epidemic situation improves and demand gradually picks up.
Li Wanying, senior energy analyst at Donghai Futures Research Institute, said that during the global epidemic, Amid the spread of the virus and economic pressure, demand for crude oil has collapsed. Therefore, if we want oil prices to stop falling, demand must improve.
The International Energy Agency (IEA) March report showed that with the new coronavirus pneumonia As the epidemic spreads around the world and travel and broader economic activities are restricted, global oil demand is expected to decline in 2020. As the current situation remains unclear, this has brought great uncertainty to the assessment of the global impact of the epidemic. In the IEA’s core basic forecast, the sharp contraction in China’s oil consumption, coupled with severe disruptions to global tourism and trade, will lead to the first decline in global oil demand since 2009.
The latest monthly short-term energy released by the U.S. Department of Energy’s Energy Information Administration (EIA) The outlook report shows that global daily oil demand will fall by 5.2 million barrels in 2020 compared with 2019 levels. Global demand for oil and liquid fuels will fall by 5.2 million barrels per day in 2020 from the 2019 level of 100.7 million barrels per day, and will increase by 6.4 million barrels per day in 2021.
EIA’s forecast is based on the fact that the global economy is affected by the new coronavirus epidemic. The level of response activity has declined, the utilization rate of transportation is low, and the possibility of resumption of the production reduction agreement between OPEC and non-OPEC oil-producing countries has not been taken into account. EIA also predicts that the United States will return to net oil imports in the third quarter of 2020. Under such circumstances, the price of Brent crude oil in 2020 will drop from US$43.3/barrel to US$33/barrel.
In the short term, Li Wanying suggested that investors should pay attention to Saudi Arabia’s announcement on Saturday Official Selling Price (OSP) of Arabian Light Oil. It is understood that when relations between multiple parties eased in the past two days, Saudi Arabia expressed support for production cuts and postponed the release of OSP. Previously, Saudi Arabia started a “price war” mode. In addition to increasing production, it also competed for market share by lowering OSP. Assuming that Saudi Arabia continues to lower OSP this time, conflicts between multiple parties will further escalate, and Brent oil will fall back below $30/barrel. Assuming that Saudi Arabia does not lower OSP, it is expected that Saudi Arabia, the United States, and Russia may continue to return to the negotiating table.
At the same time, Li Wanying suggested that investors continue to pay attention to the negotiations on the OPEC+ production reduction agreement. She believes that the cooperative production reduction by many countries is a protracted war and can only be understood as the bottom support of the current market. Based on the current decline in crude oil consumption in the United States by more than 3 million barrels per day, global crude oil consumption may fall by more than 20 million barrels per day in the near future. A sharp upward shift in the center of gravity of oil prices requires waiting for the turning point of the epidemic. From a phased perspective, assuming that the epidemic can be fully controlled by the end of the second quarter, the oversupply situation in the oil market will be able to find a way out by then.
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