OPEC once again extended the production cut agreement for 9 months! The global oil market will enter a new era as a result.
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Amid the backdrop of weak global economy and soaring U.S. production, OPEC member states overcome differences to support crude oil prices.
On July 1 local time, the Organization of Petroleum Exporting Countries (OPEC) held the 15th Joint Ministerial Supervision Committee (JMMC) meeting and the 176th Plenary Session at its headquarters in Vienna, summarizing and evaluating the effect of the six-month production cut order. and decided to postpone the production cut order by 9 months to March 31 next year.
But what is the final result, Russia still needs to nod! According to the schedule, the 6th OPEC and non-OPEC oil-producing countries will be held today, and the specific quota and duration of the new production cut order will be finalized. However, Russian President Putin said last Saturday (June 29) that he and Saudi Arabia agreed to extend the existing 1.2 million barrels per day policy to cut production by six to nine months until December 2019 or March 2020. This production cut is about 1.2% of global demand.
In addition, the Super Oil Producer League is about to be released. According to Saudi Energy Minister Khalid Falih, OPEC and non-OPEC oil-producing countries are expected to sign a long-term Charter of Cooperation.
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01 OPEC agreed to extend production cuts for 9 months to 2020
Since 2017, OPEC and its allies led by Russia have been reducing oil production to prevent oil prices from falling.
OPEC said in a press release after its 176th meeting: "In view of the current basic situation and a consistent view on the prospects for the remainder of 2019, the meeting decided to extend the voluntary production cut adjustment agreed at the 175th meeting of the OPEC meeting for another 9 months to March 31, 2020 from July 1, 2019."
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Conference also recognized the key role played by participating non-OPEC countries and emphasized the importance of the 6th OPEC and non-OPEC ministerial meetings. In the first half of 2019, the Organization of Petroleum Exporting Countries + countries cut 1.95 million barrels per day, far exceeding the 1.2 million barrels per day planned to cut production.
It is observed that oil demand growth in 2019 has been lowered to 1.14 million barrels per day (mb/d), while supply in non-OPEC countries is expected to grow at a strong growth rate of 2.14 million barrels per day in 2019.
In fact, the price of OPEC's extension of the production cut agreement is that its share will be further narrowed. While the strategy successfully raised prices, the OECD's share in the global oil market has dropped to its lowest point since 1991. Falih said that endless production cuts are not Saudi Arabia's strategy. "We have cut production deeply enough, and we will not pursue endless production cuts. Market share is not Saudi Arabia's priority. Saudi Arabia plans to keep production cuts by March next year."
In addition, OPEC agreed to extend the production cut agreement. This move may anger US President Trump . As we all know, Trump has asked Saudi Arabia, the largest oil producer in OPEC, to increase oil supply and help lower oil prices.
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02 Super League is about to come out
0 When OPEC announced that it would agree to extend production cuts, a larger alliance of oil exporting countries is about to come out.
At a press conference, Saudi Energy Minister Khalid Falih said the Organization of Petroleum Exporting Countries and its allies “come together enthusiastically” to support a formal charter for the establishment of the alliance. In addition, Falih said that he was convinced that the draft OPEC+ indefinite cooperation charter will be adopted at the meeting.
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It is reported that on July 1, the OPEC national government approved the draft "OPEC+" indefinite cooperation charter and reached an agreement to extend oil production cuts. Regarding the "Union Charter", Russian Federation Minister of Energy Novak said in June that it is expected to reach a principled agreement on the "OPEC+" charter.
Once the cooperation between the two sides is institutionalized, a "global oil-producing countries super alliance" will emerge!
RBC Capital Markets analyst Helima Croft said that the formation of an oil alliance between Saudi Arabia and Russia will be an important strategic progress in the relationship between the two countries.
In fact, the super league has been in the plans of Saudi Arabia and Russia. Since OPEC joined forces with other producers including Russia, Kazakhstan and Mexico in 2016, they have been seeking to build a lasting foundation of cooperation.
In 2016, in the face of common interests, Saudi-led OPEC and Russian-led external producers decided to shelve the dispute and reached a landmark agreement called OPEC+. Saudi Arabia and Russia ended their decades of competitive relationship, and overnight, their opponents became teammates.
On October 5, 2017, the Saudi king visited Russia in a rare visit, and the relations between the two countries rose sharply. At that time, "OPEC+" became the "Petroleum Exporting Countries Super League" mentioned by the media, and appeared in newspapers.
Entering 2018, the outline of the "Super League" has become clearer. In January 2018, the United Arab Emirates oil minister hinted that in addition to joint production cuts, OPEC and non-OPEC oil-producing countries, including Russia, would coalesce in a closer way. In February, OPEC rotating chairman Suheel Mazrui told the media without hesitation that the two groups (OPEC and Russia) are studying a "framework partnership" to permanently tie the two sides together.
3 In March, Saudi Crown Prince Salman said that OPEC and Russia should consider signing a long-term agreement with a term of 10 to 20 years. In the following period, the calls for "super league" were extremely high.
Until March 20, the Super League officially announced! UAE Energy Minister Mazruy said, "OPEC and non-member states will complete a joint organization charter in June to mark its evolution to a supergroup."
can be foreseen, once the "Affiliate Charter" is passed, the global oil market will enter a new era.
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