Affected by the postponement of the emergency video conference scheduled to be held today by the Organization of the Petroleum Exporting Countries (OPEC), international oil prices fell sharply by nearly 9% in early trading. However, subsequently, driven by Russia’s positive stance, the decline in oil prices narrowed.
Russian Direct Investment Fund (RDIF) CEO Kirill Dmitriev said that Russia and Saudi Arabia are “very, very close” to an agreement on oil production. After the news was announced, international oil prices rose in the short term.
Currently, the main contract of WTI crude oil fell by 1.8% to US$27.83/barrel, and the main contract of Brent crude oil fell by 2.6% to US$33.75/barrel.
Brent oil closed lower after opening lower Narrow
U.S. President Trump said on the 2nd that he had spoken with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, and it is expected that the two countries will reach an agreement soon Agreement to cut production by 10 million barrels. Boosted by this, international oil prices surged by more than 30% last week, ending five consecutive negative weeks and setting a new record for the best performance since the futures contract was launched in 1983.
Under Saudi Arabia’s proposal and promotion, OPEC planned to hold a video conference on the 6th to discuss production cuts, and Russia later announced that it would attend the meeting. According to the assumptions of the two countries, the production reduction agreement must include oil-producing countries such as the United States, Canada and Brazil, otherwise the negotiations will be meaningless. However, just one day before the meeting, OPEC announced that the emergency meeting would be postponed to give members more time to negotiate on production cuts. Prior to this, Moscow and Riyadh were arguing over the responsibility for the fluctuations in the crude oil market, and the production reduction quotas were inconsistently allocated. Certainty also clouds the outlook for negotiations.
Helima Croft, head of global commodities research at Royal Bank of Canada, believes that the problem facing the market is that it looks like there may be a new diplomatic rift between Russia and Saudi Arabia, and the Saudi minister is violently Hitting back at Russian minister’s claims that Saudi Arabia targets shale gas. After Trump’s statement, it was difficult for all parties to reach an agreement on production cuts in the short term.
Shifting the blame
Saudi Foreign Minister Faisal bin Farhan said on the 4th that Putin’s remarks that Saudi Arabia was responsible for the termination of the OPEC agreement in March were “Completely unfounded,” it was Russia that rejected the deal in early March, and Saudi Arabia and 22 other countries tried to persuade Russia to further reduce and extend the deal. Farhan said that Saudi Arabia’s position on shale oil is clear and that shale oil is an important part of the energy field. Saudi Arabia seeks to further reduce production and achieve a balanced oil market, which is also in the interests of shale oil producers and is different from Russia’s strategy of seeking to influence shale oil with low oil prices.
Saudi Arabia’s Energy Minister Abdulaziz later issued a statement saying that Moscow’s comments were “absolutely wrong and contrary to the facts.” Saudi Arabia has expressed surprise at accusations of hostile action toward shale oil, despite the fact that the kingdom is a major investor in the U.S. oil industry. Saudi Arabia’s national oil company Aramco announced on the 5th that it has decided to postpone the official oil selling price in May to April 10, and will decide the price based on the outcome of the emergency meeting between OPEC and non-OPEC oil-producing countries held on the 9th.
Russian President Putin expressed his willingness to contribute to production reduction when attending a meeting of the Russian energy sector on the 3rd. Putin said he recently had a conversation with U.S. President Trump, and both sides expressed concern about the current oil market situation and were interested in taking joint actions to ensure long-term stability of the oil market. Russia is not a disruptor of the agreement between OPEC and non-OPEC oil producers. Russia is ready to reach an agreement with its partners.
Putin placed the blame for the recent collapse in oil prices on Saudi Arabia. “Our partner Saudi Arabia has withdrawn from the OPEC+ agreement, they have continued to increase production, and even announced that they are preparing to discount oil prices. These are the reasons for the collapse of oil prices. At the same time, the drop in demand caused by the new coronavirus has also contributed to the situation.” Putin said , “This is obviously related to the efforts of our Saudi partners to eliminate competitors who produce so-called shale oil. To do this, oil prices must be below $40 per barrel. They succeeded. But we (Russia) do not need this, we Such a goal has never been set.”
Internal differences block U.S. production cuts
There are clear differences in the U.S. energy industry over production cuts. Trump held talks with the U.S. at the White House on the 4th Energy company representatives met and pledged government help to revitalize the energy industry.
However, oil producers seem to be deeply divided on the issue of production cuts. Many large oil companies are opposed to cooperation among the world’s three largest crude oil producers. Exxon Mobil and Chevron have been lobbying against any market. Interventions.
Shale oil companies hope that the government will actively intervene. Pioneer Natural Resources proposed that the United States join the production cuts. Continental Resources and its founder and executive chairman Harold Hamm, who attended the meeting, proposed radical strategies, such as anti-dumping investigations against oil-producing countries such as Saudi Arabia. According to reports, U.S. and Canadian officials are discussing using oil tariffs to end the “price war.” If Saudi Arabia andRussia cannot quickly reach a production reduction agreement and will impose tariffs on oil imports from Saudi Arabia and Russia.
Texas, the main shale oil producing area in the United States, is considering cutting production. Ryan Sitton, oil and gas commissioner of the Texas Railroad Commission, previously said in an interview with the media that if Trump reaches an international agreement, Texas will agree to cut oil production. However, he believes that any oil agreement between the United States, Saudi Arabia, and Russia will be a one-time deal, and the United States does not need to reach a long-term agreement with OPEC.
Under federal regulations, Texas has the right to regulate production, and the Texas Railroad Commission last limited production in 1970. Local shale oil producers have proposed the option of cutting production by 500,000 barrels per day, and the committee plans to hold a meeting on April 14 to discuss this.
The plunge in oil prices has caused serious damage to the U.S. exploration and production business. The Baker Hughes Oil Drilling Rig Weekly Report showed that the number of active oil rigs in the United States fell by 62 units in the week of April 3 to 562 units, a continuous increase. It fell for the third week and was the largest weekly decline since March 2015. According to Moody’s statistics, North American oil and gas companies face US$200 billion in maturing debt over the next four years, of which US$40 billion is due in 2020 alone. Currently, the U.S. oil industry employs hundreds of thousands of workers. Many highly leveraged U.S. energy companies are facing bankruptcy and workers are facing layoffs.
Fatih Birol, Director of the International Energy Agency (IEA), said that even if the announced production cut of 10 million barrels per day is reached, this is only a good start and will help us fight for Some time, but based on our numbers, even with a 10 million barrel production cut, we’re likely to see over 15 million barrels a day of inventory build in the second quarter. That’s why I think we need to do more than what we’re currently discussing.
Ed Moya, market strategist at brokerage OANDA, said that as usual, all parties have sent complicated and contradictory messages on the issue of production cuts, but it seems that this time everyone is really willing to resolve this common issue. question, but how to do it is still unclear. If the parties cannot reach an agreement, it will undoubtedly cause crude oil prices to plummet again, even more severely than before. Even if a production reduction is reached, whether the current supply and demand contradiction can be resolved is still full of doubts, which depends on the sustainability of the impact of the epidemic on demand. </p
