The OPEC+ ministerial meeting will be held this week, and the meeting will discuss whether to extend and expand production cuts. Affected by this, international crude oil prices have fluctuated significantly recently.
Supply and demand are in tight balance
OPEC’s November monthly report estimates that global crude oil demand in 2020 will be 100.88 million barrels per day, with non-OPEC supply, OPEC The total supply of liquefied petroleum gas and unconventional oil and gas is 71.29 million barrels per day. Among them, non-OPEC supply is 66.46 million barrels per day, and OPEC liquefied petroleum gas and unconventional oil and gas supply is 4.83 million barrels per day. That is, OPEC supply is 29.58 million barrels per day, and global crude oil supply and demand are balanced.
In October 2018, OPEC crude oil production was 32.9 million barrels per day, and after reducing production by 1.2 million barrels per day, the output was 31.7 million barrels per day. As of October this year, OPEC crude oil production was 29.65 million barrels per day. That is, based on the current OPEC crude oil production, global crude oil supply and demand are basically in balance. If OPEC maintains production at 31.7 million barrels per day, global crude oil supply will be in excess of 2.12 million barrels per day, showing a tight balance. Due to the impact of uncertainties such as OPEC’s less-than-expected production cuts, increased U.S. production, and declining demand caused by the global economic downturn, the global crude oil supply and demand pattern is prone to evolve in the direction of loose supply, which determines that crude oil does not have the conditions for a sharp rise.
There are hidden dangers in the prospect of production restriction
The OPEC+ ministerial meeting in December 2018 reached an agreement that OPEC+ would reduce production by 120% based on the output in October 2018. 10,000 barrels per day until mid-2019. In July this year, OPEC+ held another meeting and extended the production reduction agreement until the end of March 2020, with the production reduction quota unchanged. In December, OPEC+ will hold another semi-annual ministerial meeting to discuss whether to extend the duration and intensity of production cuts.
On the Saudi side, because Saudi Aramco is about to launch an IPO, maintaining crude oil prices at a relatively stable level will help it raise funds. In addition, after suffering a drone attack in mid-September, although Saudi Arabia announced not long ago that it had fully resumed production, the market judged based on the losses at that time that it would be difficult for Saudi Arabia to resume production in a short period of time. It was only out of consideration for stabilizing the market. , maintaining supply by digesting its own inventories and purchasing crude oil from other countries. Therefore, if production restrictions are terminated, there is doubt about the actual production capacity that Saudi Arabia can increase.
Iran, Russia, Venezuela and other countries have single economic structures, and crude oil is the backbone of their economies, so a relatively high crude oil price is in line with their own interests. Therefore, judging from the current situation, extending the production reduction period is in the interests of all parties, and basically there will be no major changes. Market differences are mainly focused on whether the production reduction will expand in scale, and how strong the implementation of the production reduction will be. If OPEC maintains its current crude oil production, global crude oil supply and demand will tend to be in a tight balance. If it hopes to increase oil prices through production cuts, it will need to reduce production by 100,000 barrels of crude oil, which is difficult to allocate. In addition, after the production limit agreement was reached in 2018, Russia found various reasons to increase production, but its production reduction implementation rate was only 70%. The reason why OPEC was able to achieve the production limit target was based on Saudi Arabia’s excessive production reduction.
At present, Saudi Arabia has made it clear that it will no longer pay for the failure of other production-limiting alliances to reduce production as required, which makes the implementation of production reductions questionable. With oil prices at US$50-60/barrel, oil-producing countries will gain good benefits from expanding production. Driven by interests, the alliance to limit production will not be strong. If Russia still fails to reduce production in accordance with the agreement, other oil-producing countries will inevitably There are conflicts with Russia, which affects the effect of production reduction.
In summary, if OPEC+ continues to restrict production, global crude oil supply and demand will be in a tight balance, and crude oil will maintain its current range. However, considering that crude oil supply and demand may move in a loose direction, and that the maximum extension period of production restrictions is difficult to increase, and there are hidden dangers in implementation, there is a high probability that crude oil prices will fall after the OPEC+ ministerial meeting is held. </p
