Saudi makes up for Russia's production capacity?
At the beginning of the Asian market on Thursday (June 2), U.S. crude oil weakened sharply, and U.S. crude oil fell by more than 3%, hitting a new low of $111.64 per barrel in more than a week, mainly because of reports that if Russian production declines, Saudi Arabia will increase oil supply. But the fact is that OPEC+ has increased crude oil production to 648,000 barrels per day.
is the world's largest oil producer and the leader of OPEC. Saudi Arabia has maintained a tough attitude before, facing the pressure of Biden and , and has been slow to increase production. This sudden turn of 180 degrees was to increase production to make up for the vacancies of Russia's production capacity, which scared the international crude oil market in a cold sweat. After all, the scars of the price war in 2020 are still vivid in my mind.
, but the market continued to rise after just one day's pullback, continuing its strength since April, and also continued to maintain the upward cycle since 2020 in the large cycle. Therefore, the market tells investors: I don’t believe Saudi Arabia’s increase in production!
Why does the market not believe in Saudi Arabia?
crude oil is the king of commodity and is known as the blood of global industrial products. But in essence, its periodicity is not obvious; on the contrary, after taking off the vest of the cycle, the consumption attributes are more significant. This is because in the downstream demand side of crude oil, daily consumption demand such as travel accounts for a relatively high proportion.
Due to the stability of the demand side, this has led to crude oil being very sensitive to changes in supply. Therefore, you can often see an explosion in an oil well, causing abnormal changes in international oil prices. For example, in 2006, the major explosion in BP's oil refinery reduced crude oil production by 70,000 barrels, and international oil prices rose by 1%. In fact, the lost output was minimal compared to the global consumption of hundreds of millions of barrels.
Therefore, before the Russian-Ukrainian conflict broke out, "If Iran returns to the crude oil market?" 》 analyzed that since Russia did not withdraw from the international crude oil market at that time, coupled with the increase in production of OPEC+, the supply and demand balance of the international crude oil market in the first quarter of 2022 is expected. If Iran returns, international oil prices will face huge pressure.
But with the withdrawal of Russian crude oil, in the later period, "Shale production resumes on the string?" 》 pointed out that in the short term, Iran's 2 million barrels per day production capacity alone cannot fill Russia's production capacity gap.
And at this point in time, even if Saudi Arabia stands out and says it will increase production, it may be powerless in the face of reality. OPEC now only Saudi Arabia and the UAE have the remaining capacity to increase production. After the established production increase target this year is completed, the remaining capacity of the two countries will be 480,000 barrels per day and 1.01 million barrels per day respectively, and the additional extreme capacity to increase production is 1.5 million barrels per day.
So OPEC+ decided to accelerate the increase in crude oil production on June 2 local time, increasing crude oil production by 216,000 barrels per day in July and August 2022 to 648,000 barrels per day in July and August 2022. But the market means that due to limited idle production capacity, increasing production in OPEC means that the smaller the space for production in the future . I was worried about OPEC's increase in production in the early stage, but since the production has increased, what else should I worry about? This is a negative news.
and Russia remains within OPEC+, which shows that crude oil giants still maintain the cartel alliance to maintain control over oil prices.
, and this is probably the reason why Saudi Arabia is willing to increase production. Saudi Arabia is currently facing pressure from the international community, and the "100 USD per barrel of crude oil is much more expensive in 2022 than in 2014!" pointed out that the current oil price is at a high level, and the US dollar is also at a high level. This leads to the import inflation pressure of non-dollar countries such as EU than the United States. It is not in Saudi Arabia's interest to make too many enemies. In the last round of crude oil bull market, Saudi Arabia mentioned that $100 is a price that the whole world is a suitable price. Therefore, Saudi Arabia's increase in production will also help it ease its relationship with the country and society.
However, "Has Russian crude oil been "stopped"? 》 pointed out that the gap caused by Russia may not be as large as seen in the data. First of all, from the perspective of export data, no significant decline in data was seen. To a certain extent, Russia has increased exports and shipped goods in advance due to concerns about future sanctions. On the other hand, Russia can also evade sanctions on crude oil exports to a certain extent through other friendly countries.
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