On Saturday (December 28), U.S. oil prices fluctuated and climbed, maintaining the upward momentum. The rise in oil prices is mainly supported by two factors. One is OPEC’s commitment to reduce production, and the other is the market’s rebound in risk appetite. However, from a medium-term perspective, some news this week has also paved the way for a mid-term decline in oil prices. For example, the signing of an agreement between Kuwait and Saudi Arabia may lead to an increase in supply next year, and Iran and India announced plans to accelerate strategic port connection plans. Many analysts pointed out that the medium-term trend of oil prices is still not optimistic.
OPEC’s commitment to production cuts is one of the factors supporting the rise in oil prices
OPEC and other oil-producing countries such as Russia decided this month to extend oil production restrictions until the end of March and further increase oil prices. Large production cuts to balance the oil market. OPEC agreed to meet again in early March to discuss policy issues.
OPEC and its allies agreed in November to extend the production reduction agreement that began in 2017 and increase production cuts. Under the production cuts, supply on the global market would be reduced by up to 2.1 million barrels per day per day, accounting for about 2% of global demand. Bjornar Tonhaugen, head of oil market research at Rystad Energy, said in a report that OPEC needs to take more action to balance the oil market on a sustainable basis.
The Russian economy has been able to cope with the three-year oil price collapse thanks to budget strategies and capital accumulated by sovereign funds.
At the beginning of this month, OPEC+ agreed to deepen production cuts by 500,000 barrels per day in the first quarter, bringing the total production reduction to 1.7 million barrels per day; OPEC+ will discuss production after the first quarter at the Vienna meeting in March Strategy.
In addition, Siluanov also said that it is proposed that the new investment structure of the National Wealth Fund imitate the structure of the central bank’s foreign exchange reserves. Siluanov said, “We should consider investing part of the national wealth fund in gold because it is a more sustainable asset.”
Iraq fulfilled its promise to reduce production Providing some support to oil prices
Saudi Arabia’s pressure on other OPEC countries to reduce production seems to have been echoed by Iraq, the main “production reduction violator”.
According to Petro-Logistics SA and Genscape Inc., which track production. According to statistics, Iraq has reduced supply this month to fulfill its outstanding production reduction commitments at OPEC. Petro-Logistics estimates that Iraq’s output fell by 110,000 barrels per day in December.
Since the establishment of OPEC+ at the end of 2016, Iraq has been the weakest link in OPEC+’s production cuts. December production figures are still preliminary and it is unclear to what extent Iraq has revised them. According to analyst firm Kpler, exports appear to be similar to November levels, although this valuation may change.
However, Iraq still has a long way to go. After the country ramped up production for much of 2019, output is now at 4.67 million barrels per day, back near the starting point of this year’s production cuts. The country will need to implement deeper production cuts to meet new production quotas starting in 2020, and some market observers have expressed doubts that Iraq can achieve this goal.
OPEC+, a group of 24 oil producers led by Saudi Arabia and Russia, is determined to cut production further to prevent a fall in next year amid weaker global demand and rising U.S. shale output Oversupply situation. Falling oil prices over the past three years have supported crude prices and protected the organization’s revenue.
Chart: US crude oil 4-hour chart this week’s trend
The rebound in global risk appetite supports oil prices
US stocks still performed well during the Double Dancing Day period. The rise in the stock market stimulated market risk appetite and also supported oil prices.
U.S. stocks hit another record high this week. The Nasdaq broke through the 9,000-point mark for the first time in history. Factors such as progress in international trade relations and strong U.S. holiday retail sales contributed to optimistic market sentiment. The number of Americans filing initial claims for unemployment benefits fell to a three-week low last week.
Due to a series of major factors such as rising optimism about the progress of trade relations and the Federal Reserve’s loose monetary policy, U.S. stocks have continued to hit record highs this year and have continued the longest bull market cycle in history.
The S&P 500 rose 8.3% in the fourth quarter and is up 28.6% so far this year, its best performance since 2013. If the S&P 500 rises more than 29.6% this year, it would be its biggest gain since 1997, when it rose 31%.
At the same time, global stock markets are advancing rapidly. According to calculations by Deutsche Bank, global stock market performance remained strong in 2019, with the total market value increasing by more than US$17 trillion.
Analysis pointed out that loose monetary policies around the world provided impetus for the stock market’s surge. Major central banks around the world have taken a more dovish approach, boosting markets. The Federal Reserve has cut interest rates three times this year, and the European Central Bank has further lowered interest rates that were already negative.
In addition, the easing of global trade tensions also helped push up the stock market. Recently, the U.S. House of Representatives passed the Trump administration’s new North American trade agreement. In Europe, Boris Johnson’s Conservative Party scored a huge electoral victory, making the prospect of Brexit clearer.
With only the last few trading days left for U.S. stock trading in 2019, market participants are full of expectations for the prospect of completing an international trade agreement. In the past few days, President Trump and other officials have hinted that�This is despite OPEC’s decision earlier this month to extend production cuts to boost oil prices.
The survey shows that U.S. crude oil benchmark West Texas Intermediate oil futures are expected to average US$56.00 per barrel next quarter, which is almost the same as the November forecast of US$55.41 per barrel. The survey shows that investment banks expect the average price of Brent crude oil to be US$60.65 per barrel in 2020 and the average price of West Texas Intermediate crude oil to be US$55.68 per barrel.
Martijn Rats, commodities strategist at Morgan Stanley, said, “In fact, OPEC has cut large-scale oil supply for a long time. Unusual.” The strategist said, “Longer and deeper production cuts are still needed, reflecting underlying weakness in market fundamentals.”
Bank of America Merrill Lynch Commodities and Francisco Blanch, director of derivatives research, said, “The production growth of non-OPEC and non-shale oil will reach the strongest level in 10 years, so there will be an oil supply glut in the first half of next year.”
To sum up, the main factor for the rise in oil prices this week is that OPEC+’s production reduction commitments have been continuously implemented by OPEC member states. At the same time, the rebound in market risk appetite during the Double Day period also supports oil prices. However, due to the fragile production reduction alliance and sluggish global crude oil demand, the supply and demand of oil prices will remain unbalanced next year, which will be reflected in a pattern of oversupply, which has paved the way for a mid-term downward trend in oil prices. </p
