On the evening of July 18th, Beijing time, an announcement was released on the OPEC official website stating that OPEC+ agreed to increase the average daily crude oil supply by 400,000 barrels monthly from August this year; it will strive to increase the supply of crude oil by 400,000 barrels per month from September 2022 when market conditions permit. 5.8 million barrels per day of production cuts will be ended.
According to Wind data, in early trading in Asia on July 19, the main contract of NYMEX crude oil futures opened 1.23% lower, and then rose rapidly. As of 7:04 on the 19th, Beijing time, the contract fell by 0.35% to US$71.31 per barrel.
Source: Wind
OPEC+ plan to gradually increase production was finalized
On the evening of July 18th, Beijing time, after the 19th OPEC and Non-OPEC Ministerial Meeting (ONOMM), the OPEC+ plan to increase production was finally finalized.
According to an announcement on OPEC’s official website, in view of the current oil market fundamentals and consensus on its prospects, OPEC+ agreed to increase daily average crude oil supply by 400,000 barrels monthly from August this year until it offsets the current 5.8 million barrels/ daily production reduction. At the same time, the production reduction agreement originally scheduled to expire in April 2022 was extended to the end of 2022.
According to the timetable in the announcement, OPEC+ is expected to end its 5.8 million barrels per day production reduction plan before September 2022, if market conditions permit.
OPEC said that as vaccinations accelerate in most parts of the world and the economic recovery continues, crude oil market fundamentals continue to strengthen, oil demand is showing clear signs of improvement, and OECD inventories are also falling. OPEC also stated that it will continue to adhere to the mechanism of holding monthly OPEC and non-OPEC ministerial meetings in the future to assess market conditions and decide on adjustments to production levels next month.
In fact, the process of OPEC+ reaching an agreement to increase production has been full of twists and turns.
On July 1st and July 2nd local time, OPEC+ negotiated on increasing crude oil production for two consecutive days, but failed to reach an agreement. The key to the deadlock in the negotiations is the failure to resolve differences between the two core members Saudi Arabia and the United Arab Emirates. It is reported that the UAE requested to increase its baseline production used to calculate production cuts in exchange for a larger increase in production, while Saudi Arabia stated that it could not agree to the UAE's request and insisted on extending the production reduction agreement.
Judging from the latest agreement, OPEC+ agreed to increase the UAE's new crude oil production reduction baseline to 3.5 million barrels per day, and also raised the production reduction baselines of Saudi Arabia and Russia to 11.5 million barrels per day.
Short-term uncertainties are eliminated
With the OPEC + production increase agreement finalized, how will the crude oil market go?
In the view of New Era Futures analyst Wang Chengqiang, the finalization of the production increase agreement means that short-term uncertainties in the crude oil market have been eliminated, which can be regarded as a good thing. Despite the complexity of the situation, there are main lines to be found, and crude oil is expected to rebound in the short term.
Regarding the volatile correction of oil prices in the past two weeks, Wang Chengqiang said that under the double blow of the previous deadlock in OPEC+ negotiations and the panic of price war, crude oil prices have weakened for two consecutive weeks. It falls quickly and rises quickly. Long bull is the main direction, and falling is a rare opportunity.
According to analysts, as the world's major economies continue to repair, the global crude oil demand gap will gradually expand.
Austrian JBC Energy Consulting Company recently predicted that the global crude oil supply and demand gap in July will be slightly less than the daily average of 2 million barrels. Even if the average daily production increases by 600,000 barrels, the global crude oil market supply and demand gap in August will still expand to an average of 2.5 million barrels per day. .
Open Source Securities said that with the arrival of the peak summer driving season, fuel consumption in countries such as the United States, India and China is rising, and growing demand will continue to support the crude oil market.
This article comes from China Securities Journal
