On Monday, crude oil futures rose sharply, disturbed by OPEC+’s deepening of production cuts beyond expectations. According to reports, the OPEC+ organization, composed of the Organization of the Petroleum Exporting Countries (OPEC) and Russia and other oil-producing countries, has reached a new production reduction agreement. On December 6, local time, after a two-day production reduction meeting in Vienna, Austria, OPEC+ decided to increase the original production reduction of 1.2 million barrels per day to 1.7 million barrels per day by the end of March 2020. Surprisingly, Saudi Energy Minister Abdul Aziz also stated that he will further significantly reduce production based on the production cuts agreed by OPEC+, and will reduce production by an additional 400,000 barrels per day on the basis of the production reduction quota. This will This means that OPEC+’s total production cuts will reach 2.1 million barrels per day, and Saudi Arabia’s production will be the lowest level since 2014 in terms of sustainability. OPEC+’s final actual production reduction will reach 2.1 million barrels per day, which is equivalent to 2.1% of the current total global crude oil demand.
Crude oil prices in Shanghai rose on Monday (December 9). The main contract SC2001 closed at 467.9 yuan/barrel, up 9.7 yuan, or 2.12%, hitting a new high of 469.5 yuan/barrel in the past eight weeks. Market analysts believe that Saudi Arabia has done a good job in setting expectations that they may further reduce production. Saudi Arabia may further reduce production on the basis of production quotas, which has alleviated concerns about global crude oil supply glut to a certain extent.
On December 9, under the influence of the news that OPEC+ is preparing to deepen production cuts in the first quarter of next year, after hitting a new high in the past three months in the day, INE crude oil continued to rise in the night session, and finally The main contract closed at 1.17%, at 466.5 yuan/barrel.
Origin of the 17th OPEC+ Ministerial Supervision Committee
For this price increase, according to futures Daily reporters understand that the market has already predicted this.
In fact, last Friday (December 5), OPEC and its allies finally agreed at the December meeting Agreeing to further cut production, optimistic news about U.S. non-farm employment data and trade agreements boosted risk appetite. In addition, the number of active oil drilling rigs in the United States dropped to the lowest level in more than two years. International oil prices rose rapidly, even hitting a new high in the past three months, and was once close to $60 (WTI) and $65 (Brent) levels.
Although oil prices have given up part of their gains since then as the market fully digested this good news, the market generally believes that INE crude oil will respond on Monday. There is a high probability that there will be an upward trend.
In fact, the 17th OPEC and Non-OPEC Ministerial Supervision Committee of Oil-Producing Countries ended on December 6 (JMMC), the two sides not only reached an agreement on expanding production cuts, but also decided to reduce production by an additional 500,000 barrels per day in the first quarter of 2020. At this point, the scale of OPEC+ production cuts will be expanded to 1.7 million barrels per day.
In addition, several participating countries, mainly Saudi Arabia, have also stated that they will continue to voluntarily reduce production.
For example, Saudi Energy Minister Abdulaziz stated after the meeting that in addition to additional production cuts, Saudi Arabia In addition to undertaking a production reduction of 167,000 barrels per day, Saudi Arabia will continue to voluntarily reduce production by 400,000 barrels per day in the future. Under such circumstances, it is believed that as the implementation rate of production reductions improves, OPEC+’s effective production reduction scale will be as high as 2.1 million barrels per day. The largest voluntary production cut in history.
The Iraqi Oil Minister stated after the Vienna meeting that by the end of December, Iraq will 100% comply with OPEC+ production cuts protocol. The country agreed to reach this level of compliance in December and has asked exporting companies and mining companies to reduce exports and production.
The market believes that this production cut has not exceeded expectations. After all, stabilizing oil prices is the consensus of oil-producing countries, especially As the world economy faces greater downward pressure, production cuts can stabilize international oil prices to a certain extent, but the extent of the effect remains to be seen. CCTV financial commentator Liu Ge said.
In fact, in addition to stabilizing oil prices and supporting fiscal revenue, Liu Ge believes that the reason why Saudi Arabia has been leading the production reduction issue is It is also taken into account that the listing of Saudi Aramco requires stable market expectations.
It is understood that from the time OPEC members led by Saudi Arabia put forward the slogan of production restriction until now, the organization can be said to have handed over Satisfactory transcript. Saudi Arabia occupies a dominant position in the entire production reduction process, has a strong voice, and has overfulfilled its production reduction tasks.
Especially after the new crown prince of Saudi Arabia took office, he promoted the IPO of Saudi Aramco, hoping to tie oil resources to the stock price. Change Saudi Arabia’s passive status as a single resource selling country. Related reports also show that the final price of Saudi Arabian Oil Company’s initial public offering (IPO) is 32 Saudi riyals (approximately $8.53) per share. In other words, Saudi Aramco will raise US$25.6 billion in funds, which will not only set a global IPO record, but the corresponding market value of the company will also be�To reach $1.7 trillion. However, all of this requires a high oil price environment to help it break through the key points of its early difficulties.
In view of the current record highs in shale oil production in the United States, Russia’s attitude is ambiguous, said a senior energy and chemical analyst at the East China Sea Research Institute Li Wanying believes that Middle Eastern countries can only choose to sacrifice part of their market share to promote the balance between supply and demand and increase the focus of oil prices.
Considering 2020, it can be said that 90% of the promotion of global crude oil market rebalancing depends on whether production reduction can be successfully promoted. OPEC and non-OPEC will not only hold a special ministerial meeting on March 6, 2020, but also hold a formal ministerial meeting in Vienna on June 10, 2020. As revealed by Russian Energy Minister Novak, production reduction measures are currently It is only planned to last until the first quarter of 2020, a much shorter timeframe than some OPEC ministers have called for production cuts to June or December 2020.
Superimposed on the current oil prices, Brent oil basically fluctuates around the range of 60-65 US dollars per barrel, which does not meet the psychology of most Middle Eastern countries. Price, Li Wanying believes that OPEC will continue to cut production in the short term. “Especially as transportation bottlenecks in the United States ease and port infrastructure improves.”
In fact, the UAE Minister of Energy Mazrou recently said that if the oil price is between 60 and 80 US dollars per barrel, OPEC+ will be satisfied.
Is the bottom of oil prices really determined?
Although the depth of production cuts and voluntary production cuts this time far exceed market expectations, Commerzbank said in a report pointed out that OPEC’s oil production has been significantly lower than the agreement for several months. In other words, the latest decision to deepen production cuts will change little.
In fact, Commerzbank added on December 6: “The threats facing OPEC+ are not over yet. We believe that the decision to deepen production cuts is far from enough. After all, in 2020 The excess oil volume in the first quarter of 2020 was well over 500,000 barrels per day. More importantly, it is not clear how to control the similarly large surplus in the second quarter without production cuts.” Therefore, Germany Commercial banks believe there are downside risks to oil prices.
Other analysts also pointed to the challenges of a deal with only three months remaining. JBC Energy said in a report on Friday: “The key takeaway so far is that the current production reduction agreement will not officially end until March 2020, which will not help market pricing much. In other words, the agreement will almost increase This increases the relative uncertainty that the market must deal with and leaves a lot of room for speculation.”
Goldman Sachs also pointed out that if other producers do not fully comply with production reduction quotas, Saudi Arabia may be allowed to increase production cuts in the short term. It could also just be a sign that OPEC+ doesn’t feel like its task is so daunting. Russian Energy Minister Alexander Novak said: “We do see a risk of oversupply in the first quarter of 2020 due to seasonal declines in demand for refined products and crude oil.”
The extent of the oil supply glut, and the extent of OPEC’s challenge in balancing the market, will largely depend on whether U.S. shale oil can continue to grow . Rystad Energy said in a report that shale oil will continue to grow even if WTI crude oil prices remain around $50 per barrel. That remains to be seen, and the financial pressure spreading across the industry will pose a huge challenge to drillers trying to maintain growth.
Oil analyst Nick Cunningham pointed out that if OPEC succeeds in boosting oil prices, cutting oil production may give shale oil drilling Business brings vitality.
The danger OPEC+ faces is that if the effect of production reduction is too great, for example, if oil prices rise too much, U.S. shale oil may rebound, which may speed up drilling and may lead to a supply glut again. Then, OPEC+ may need to extend production cuts again.
However, Li Wanying told reporters that there are still many practical problems in current shale oil production.
The first is the problem of natural attenuation of shale oil wells. According to reports, generally speaking, the high production duration of shale oil wells is generally about 2 years. The production of a single well declines by up to 40% after half a year, by as much as 70% after 1 year, and enters ultra-low production after 2 years. Using this time to convert, we may face the reality that some drilling efficiency will decline in 2020. Judging from DUC, the latest data shows that the number of semi-completed wells in major shale oil producing areas dropped by 225 to 7,642 within a month, while it fell by 8% within a year. Such a fast pace reflects the increasing frequency of replacement well operations. Once companies believe that oil price expectations are poor, they will control the investment of new funds into DUC development, thus limiting the continued growth of U.S. production. In fact, oilfield services company Halliburton said at the end of October that it expected drilling and completion activity to slow down further in the final months of 2019.
The second is the problem of “mother and child well”. It is understood that this problem has not been well resolved, so from the perspective of input-output economics, it is unlikely that shale oil companies will continue to promote the “mother and child well” technology on a large scale. In addition, in addition to the main production area of Permain, the address of the Anadarko region will weaken its possibility of increasing production in the future.
Therefore, Li Wanying believes that although U.S. crude oil production will further increase in 2020, taking into account the objective technical limitations of large-scale production With the negative impact on global oil prices, it is expected that oil companies will be more inclined to choose production plans that steadily increase production capacity.
In general, considering that since the second half of 2019, OPEC’s active production reduction has promoted the rebalancing of the global oil market. Effective advancement, but the seasonal maintenance of U.S. refineries in 2020 and the continued increase in U.S. production will cause the pressure of oversupply to return. She expects oil prices to perform better in the second half of the year than in the first half.
, Li Wanying believes that although U.S. crude oil production will further increase in 2020, considering the objective technical limitations of large-scale production and the negative impact on global oil prices, it is expected that oil companies will be more inclined to choose a production plan that steadily increases production capacity.
In general, considering that since the second half of 2019, OPEC’s active production reduction has promoted the rebalancing of the global oil market. Effective advancement, but the seasonal maintenance of U.S. refineries in 2020 and the continued increase in U.S. production will cause the pressure of oversupply to return. She expects oil prices to perform better in the second half of the year than in the first half.
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