The OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) meeting held from December 5th to 6th has concluded.
Under the new production reduction agreement, the UAE will cut another 60,000 barrels/day to 3.012 million barrels/day, Iraq will cut another 50,000 barrels/day to 4.462 million barrels/day, and Nigeria will cut another 21,000 barrels/day to 1.753 million barrels/day. Barrels/day, Kuwait cut production by another 55,000 barrels/day to 2.669 million barrels/day, Oman cut production by another 9,000 barrels/day to 961,000 barrels/day, and Angola did not need to increase production cuts. Russia will bear 70,000 barrels/day of the 500,000 barrels/day production reduction quota. Excluding condensate, Russia’s new production limit will be 10.398 million barrels/day. Saudi Arabia will bear 167,000 barrels/day of the additional production reduction quota and continue to voluntarily reduce production by 400,000 barrels/day. The post-production quota will be 9.7 million barrels/day. On a sustainability basis, Saudi output will be the lowest since 2014. After the implementation rate of production cuts improves, the effective scale of OPEC+ production cuts will be 2.1 million barrels per day.
In addition, the OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) meetings will be held again on March 6 and June 10 next year.
Saudi Arabia has not sacrificed its market share
In this new production reduction agreement, Saudi Arabia will not only bear 167,000 barrels/day of the 500,000 barrels/day, but also Continuing the voluntary production cut of 400,000 barrels per day, Saudi Energy Minister Aziz said that it will be reduced to 9.7 million barrels per day. The old production reduction agreement required Saudi Arabia’s production limit to be 10.311 million barrels/day, while Saudi Arabia’s average production from January to November 2019 was 9.778 million barrels/day. Among them, Saudi crude oil production has remained at 10 million barrels/day since March this year. Below, based on the production reduction quota calculation under the new production reduction agreement, Saudi Arabia’s latest crude oil production limit is 9.744 million barrels per day, which is close to the average crude oil production this year. Therefore, even if Saudi Arabia’s production reduction implementation rate is 100%, Saudi Arabia’s production will not change much from the previous period. Saudi Arabia still maintains its previous market share, but only implements the existing excess production reductions on paper in the new production reduction agreement.
Saudi Aramco is listed for trading, and Saudi Arabia has obvious intentions to raise oil prices. After the OPEC+ meeting, Saudi Energy Minister Aziz publicly sang more of Saudi Aramco, saying he was convinced that Saudi Aramco’s market value would exceed US$2 trillion in a few months. Saudi Aramco’s final IPO price was 32 riyals per share, with a valuation of approximately US$1.7 trillion, far lower than the US$2 trillion target initially proposed by Saudi Crown Prince Mohammed. Overseas investors responded relatively poorly to the Saudi Aramco IPO. cold. At present, Saudi Aramco has been listed for trading. Saudi Arabia has a strong willingness to raise oil prices and thereby increase Aramco’s market value. This time, it will reduce production by another 400,000 barrels per day and deepen production cuts to achieve the upward effect of oil prices. Oil prices are supported by OPEC+’s deepening of production cuts. Saudi Aramco is On the second day of listing, the market value exceeded US$2 trillion.
The picture shows that the new production reduction agreement has little impact on Saudi Arabia
Saudi Arabia announced 2020 In the 2018 fiscal budget, expenditures are expected to be 1.02 trillion rials (approximately US$272 billion); fiscal revenue is expected to be 833 billion rials (approximately US$222.1 billion); the fiscal deficit is expected to be 187 billion rials (approximately US$222.1 billion). 49.9 billion U.S. dollars, the seventh consecutive year of deficit); oil revenue is expected to be 513 billion rials (about 137 billion U.S. dollars, down nearly 15% from this year); economic growth is expected to be 2.3%. According to Bloomberg calculations, Saudi Arabia’s latest budget is based on an average oil price of $65/barrel next year, while Saudi Arabia’s 2019 public finance plan is still based on $80/barrel. Compared with last year, Saudi Arabia’s budget this year is based on an average price of $65/barrel. The design appears particularly cautious. But if Saudi Arabia wants to balance its budget in 2020, oil prices need to remain at $89 per barrel. Judging from the pessimistic situation of oil prices derived from the Saudi Aramco IPO and the Saudi fiscal budget, the oil market is not very optimistic. Therefore, deepening production cuts and urging countries that have not met the production reduction standards to improve the implementation rate of production reductions have become Saudi Arabia’s top priority.
Russia has not made concessions under the new agreement
Russia’s early implementation of production cuts often failed to meet the standards. According to the old production reduction agreement, Russia’s crude oil production (including condensate) cannot exceed 11.191 million barrels per day. In 2019, Russia only met the production reduction standard from May to July. The implementation rate of production reduction in the remaining months was less than 100%, with an average production of 11.249 million barrels per day. sky. In the latest production reduction agreement, Russia is required to bear 70,000 barrels/day of the 500,000 barrels/day. After excluding condensate, the upper limit of Russian crude oil production is 10.398 million barrels/day.
Based on previous Russian statistics including condensate, we estimate that if condensate accounts for 7% of crude oil production, Russia’s average production from January to October 2019 will be 10.461 million barrels per day after excluding condensate. , deepening the production reduction of 70,000 barrels/day can reach the target of 10.398 million barrels/day; if condensate accounts for 8% of crude oil production, Russia’s average production from January to October 2019 after excluding condensate will be 10.349 million barrels/day. Russia does not need to deepen its crude oil production cuts to achieve the production target in the new agreement; if condensate accounts for 7.5% of crude oil production, Russia’s average production from January to October 2019 after excluding condensate will be 10.405 million barrels per day, consistent with the new agreement China and Russia are close to the production limit of 10.398 million barrels per day. Therefore, we believe that the new production reduction agreement will not have much impact on Russia’s previous crude oil production, and Russia can still maintain its previous crude oil production and market share.
Countries that did not meet the early production reduction targets were put under pressure
Iraq is an OPEC member It is the second largest crude oil producer in China, but it has not completed its production reduction target in any month this year. From January to mid-November 2019, Iraq’s crude oil production in March was the lowest at 4.52 million barrels per day, which is still higher than the production limit stipulated in the old production reduction agreement. 4.512 million barrels/day, with an average output of 4.688 million barrels/day, which is 176,000 barrels/day higher than the old production reduction agreement. This new production reduction agreement requires Iraq to deepen its production reduction by an additional 50,000 barrels/day. If Iraq complies with the new production reduction agreement, then in the future Iraq can reduce crude oil production by at least 226,000 barrels per day compared to the current situation; however, judging from the implementation of the previous production reduction agreement, there are still great doubts about whether Iraq can complete the production reduction target in the future.
Like Iraq, Nigeria is also One of the countries that has completely failed to comply with the production reduction agreement. According to the old production reduction agreement, Nigeria needs to reduce crude oil production to 1.685 million barrels/day. This new production reduction agreement requires Nigeria to deepen its production reduction by 21,000 barrels/day. Previous production reductions have never reached the standard. Deepening production cuts again, it is doubtful whether Nigeria can achieve its production reduction targets.
The recent implementation rate of production cuts in the United Arab Emirates is less than 100%. From January to November 2019, the average crude oil production in the United Arab Emirates was 3.076 million barrels per day, which was 3.072 million barrels per day compared with the old production reduction agreement. There is not much difference in barrels/day, mainly due to the gradual increase in crude oil production in the United Arab Emirates from July to October and exceeding the upper limit of the old production reduction agreement. In addition, the Intercontinental Exchange Group (ICE) previously announced that the Abu Dhabi National Oil Company (ADNOC ) and the world’s nine largest energy companies have cooperated with ICE to establish the Abu Dhabi Crude Oil Futures Exchange (ICE Futures Abu Dhabi), and will launch the world’s first Murban crude oil futures contracts on this new exchange. ICEMurban Futures will be launched in the UAE on a FOB basis. Fujairah carries out physical delivery. And Murban crude oil is light, sweet crude oil produced by ADNOC. ADNOC produces about 3 million barrels of oil per day, of which about 1.7 million barrels per day is Murban crude oil. This new production reduction agreement requires the UAE to deepen its If it is to reduce production by 60,000 barrels per day in the first half of this year, compared with Iraq and Nigeria, the UAE is more likely to conscientiously complete the production reduction agreement. However, combined with the previous statement by the ADNOC executive that it hopes to provide Murban futures to replace Brent crude oil futures , although the relevant comments were later withdrawn, it is not difficult to see that the UAE also hopes to improve Murban’s international pricing power, thus the possibility of the UAE significantly reducing crude oil production has been weakened.
Ecuador’s production reduction has not reached the standard and will officially withdraw in January next year OPEC. Under the old production reduction agreement, Ecuador’s crude oil production was capped at 508,000 barrels per day, and most months it did not comply 100% with the production reduction agreement. In October, Ecuador’s cancellation of domestic fuel subsidies triggered public protests, affecting crude oil production in oil fields and the operation of oil pipelines. In the end, Ecuadorian President Moreno repealed the decree to terminate fuel subsidies. In addition, Ecuador will withdraw from OPEC in January next year. Therefore, Ecuador’s crude oil production will no longer be restricted by 508,000 barrels per day and pressure from OPEC members, and is expected to remain above 530,000 barrels per day.
The fundamentals of crude oil have not changed much
The European and American manufacturing PMI fell slightly and are still below the boom and bust line, and optimistic expectations for Sino-U.S. trade have been released again. In December, the Eurozone manufacturing PMI was 45.9, a month-on-month decrease of 1. Among them, the German manufacturing manufacturing PMI was 43.4, a month-on-month decrease of 0.7, and the French manufacturing PMI was 50.3, a month-on-month decrease of 1.4. The European manufacturing industry recovered after two consecutive months. Slightly lower. In December, the U.S. Markit manufacturing PMI was 52.5, down 0.1 from the previous month, and fell slightly after three consecutive months of rebound. In addition, the Sino-US trade news is good, the market’s optimistic expectations have been released again, and macroeconomic concerns have eased.
U.S. crude oil production remains high, and the refinery’s autumn maintenance period has ended. As of the week of December 6, U.S. crude oil production was 12.8 million barrels/day, a decrease of 100,000 barrels/day month-on-month, and a year-on-year increase of 9.4%; U.S. refinery capacity utilization was 90.6%, a month-on-month decrease of 1.3 percentage points, and a year-on-year decrease of 4.5 percentage points. . The traditional autumn maintenance of U.S. refineries has ended, and although the capacity utilization rate has returned to more than 90%, judging from the fact that the capacity utilization rate is lower than the same period last year and the five-year average, U.S. crude oil demand is not optimistic.
Summary
Overall, U.S. supply remains high. OPEC+’s increased production cuts this time are more to cope with concerns about declining crude oil demand next year. Judging from the current implementation rate of production cuts, Saudi Arabia’s substantial voluntary production cuts have not had much impact on existing production. Russia’s production reduction of 70,000 barrels/day after excluding condensate has not affected its existing production. Whether it can be effectively implemented in the future This agreement still falls on Iraq, Nigeria, the United Arab Emirates and other countries. Judging from the current implementation situation, 100% production reduction is questionable. If OPEC complies with the new production reduction agreement 100%, it is expected to reduce production by at least 465,000 barrels per day compared with the current situation.
In addition, judging from the fact that OPEC+ will hold meetings in March and June next year, on the one hand, it hopes to urge oil-producing countries to improve their implementation rate in a timely manner, and on the other hand, it is also aimed at the oil price trend next year and the expansion of U.S. shale oil to encroach on OPEC+ Shares can be adjusted accordingly.
In the short term, although OPEC+’s deepening of production cuts has not caused a trend increase in oil prices, it has provided more support to oil prices; in the medium and long term, without OPEC+ making substantial production cuts, the market will still be cautious OPEC+ has reservations about tightening the supply side and thus affecting crude oil prices. The details still depend on the implementation of OPEC+ production cuts in the first quarter of next year.
��We still have reservations about OPEC+ tightening the supply side and thus affecting crude oil prices. The details will still depend on the implementation of OPEC+ production cuts in the first quarter of next year. </p
