ATFX Comment: The negotiation results of the OPEC+ meeting cannot be said to be completely failed, but it is not very inspiring. The overall production cut plan is divided into three levels. In May and June this year, the production cut target is 10 million barrels per day, and in the next few months, it will be reduced to 8 million barrels per day (that is, 2 million barrels will be increased); in the first quarter of 2021, it will be reduced to 6 million barrels per day, which means an increase of 4 million barrels per day. It can be seen that OPEC+'s production cut is more to deal with the impact of the epidemic, rather than to truly stimulate oil prices in the long term. In the report posted on OPEC's official website, the following content is displayed at the bottom:
Figure 1, OPEC's official website article translation-ATFX
That is to say, Mexico does not want to join this production reduction plan. As for the reasons, the report is not given. Looking at Mexico's economic fundamentals, the annual growth rate of GDP is 0.5% negative, the unemployment rate is 3.6%, the inflation rate is 3.25%, the benchmark interest rate is 6.5%, and the government debt ratio is 46%. Although some indicators performed poorly, such as GDP growth, the overall economic development is still stable and controllable, so economic problems are not the basic problem that Mexico does not agree to reduce production. Then what is the key? It's very simple, it's to let the United States join in the production cut. In fact, the current third-level production cut plan is unfair to all oil-producing countries except the United States, because the world's largest oil-producing country is the United States, but the United States has different production cuts, which seems like a joke.
At 8:00 tonight, Saudi will preside over a special meeting of G20 Energy Ministers to continue to discuss matters related to production cuts. The final result is expected to be announced around the early morning of Saturday, Beijing time. It should be noted that no matter how the production cuts develop, the negative impact of the epidemic on oil prices is still continuing. According to relevant data, the current daily demand for crude oil has dropped by nearly 30 million barrels per day, accounting for about 30% of global daily output; the OPEC+ meeting only cuts output by 10 million barrels, which is still a cumulative reduction plan, which will not have much boost to oil prices.
Figure 2, U.S. crude oil daily production trend chart - ATFX
From 5.074 million barrels of crude oil produced in 2007 to 12.232 million barrels of crude oil produced in today's 12.232 million barrels of crude oil produced in US oil companies, the production capacity of U.S. oil companies has doubled. During this period, OPEC and Russia, led by Saudi Arabia, experienced a painful production cut. If the United States does not join the production cuts, the production cuts painstakingly supported by other oil-producing countries will also be meaningless.
Figure 3, daily trend chart of crude oil (USOIL) - ATFX
crude oil seems to have to to bottom out again. If the meeting tonight cannot give a bigger surprise at the meeting, the oil price breaks through $20/barrel again, it will be a high probability event. In the case of confusing prospects, traders should remain restrained and must not frequently increase positions to buy at the bottom. After all, the impact of the epidemic will continue for several months, with unlimited risks and limited funds.
The share price of ExxonMobil, the largest oil company in the United States, also fell sharply yesterday, falling from a high of 46.71 to 41.74, with an amplitude of 11.33%. China's largest oil company, Sinopec, also closed with a negative line, but the quotation is still within today's fluctuation range. The domestic oil fund Jiashen Crude Oil ETF fell 2.17%, and is currently quoting 0.810, which has not hit a new low this week. Overall, the entire industrial chain of the crude oil market is shrouded in production cuts and the shadow of the epidemic, and long-term fluctuations or declines will inevitably be avoided. However, from the perspective of automatic market regulation, low oil prices will lead to high-cost oil companies launching supply side, thereby achieving a new supply-demand balance. Therefore, oil prices will eventually recover to above $40 per barrel, but before that, the epidemic must be over, and production cuts must also be further escalated.
ATFX Disclaimer:
1. The above analysis is provided by Dean, senior ATFX analyst.
2. The above analysis only represents the analyst's views. The foreign exchange market is risky and investment should be cautious.
3, ATFX will not be responsible for any profit or loss that may arise from direct or indirect use or reliance on this information.
4. Some content comes from the public information of the network
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