However, OPEC's decision did not inject a booster into the market as it did when it introduced the production cuts at the end of last year. International oil prices continued to rise and the year-on-year high created in April still looks out of reach. There are also differences in institutional views on the future market.
International Energy Agency (IEA) Director Birol recently said that OPEC's production cuts will not change IEA's crude oil price expectations. Under the condition of sufficient crude oil supply, the IEA does not expect major adjustments in oil prices next year. Tamas Varga, senior analyst at
PVM Oil Associates, said in an interview with the First Financial reporter that demand may rebound in the second half of next year, and OPEC crude oil demand is expected to rise to 30.5 million barrels per day, when oil prices may usher in a trending opportunity.
market response is cold
Under the influence of global economic slowdown pressure and potential threat of supply and demand imbalance, the downward pressure on international oil prices has been increasing since the second half of the year, and OPEC once again faces the problem of how to stabilize the market. Judging from the process of last week's meeting, there were differences between the parties on the issue of continuing to reduce production on the existing basis, which forced the agenda of the General Assembly to be postponed until late at night, and even some representatives of member states left the scene to protest.
Finally, with the active mediation of Saudi and Russia, OPEC+, composed of non-OPEC oil-producing countries, reached a new version of the production cut agreement. On the basis of the current basis, all parties continued to deepen the production cut of 500,000 barrels per day, reaching 1.7 million barrels per day, accounting for 1.7% of global total demand. Among them, OPEC oil-producing countries will bear 372,000 barrels per day, while non-OPEC oil-producing countries will bear 131,000 barrels per day. 11 of the 14 OPEC members participated, and Iran , Libya and Venezuela were exempted. At the press conference, Saudi Energy Minister Abdul Aziz unexpectedly announced that he would continue to voluntarily cut production by 400,000 barrels per day, which also means that the scale of effective production cuts of OPEC+ in the first quarter of next year will reach 2.1 million barrels per day.
Valga said in an interview with the First Financial reporter that it is obvious that Saudi Arabia is more determined to stabilize oil prices than everyone else. The sluggish oil prices in recent years have caused great difficulties to Saudi Arabia's national fiscal policy, which is also the most important reason why Saudi Arabia launched the Vision 2030 plan and actively promoted the listing of Agriculture-American oil. The success of Saudi Aramco's IPO is of great significance to Saudi Arabia's economic transformation goals and attracting foreign investment.
However, the production cuts beyond expectations did not stimulate a sharp rise in international oil prices. On the 9th, the main contract of crude oil fell by more than 1.5%. A report released by the U.S. Commodity Futures Trading Commission (CFTC) on the 6th showed that speculative net long crude oil held by speculators decreased by 42,901 lots to 428,035 lots, indicating that investors' willingness to be long for crude oil has cooled down.
market is also concerned about the actual effect of the production cut order. According to industry data from S&P Global Platts, OPEC's November production cut execution rate was around 145%, which means that it has achieved a production cut of 1.7 million barrels per day, and the market may quickly digest the expectations of production cuts. Edward Moya, senior market analyst at OANDA, said OPEC's decision seemed more like tidying up housework, and parties were trying to close the gap between the target and actual production cuts.
Since the joint production cuts began in 2017, the execution rate has been the biggest problem facing the production cuts, and the fiscal pressure of oil-producing countries is the reason why many countries cross the red line. In this regard, Varga told the First Financial reporter that in terms of increasing the compliance rate of production cuts, Iraq, Nigeria, and other countries have the ability to reduce production capacity by another 400,000 barrels per day, which is crucial to the actual production cut effect, but there seems to be no sufficient measures to ensure that the capacity reduction is finally implemented, which may become a hidden danger. In addition, Russia has not participated in production cuts, and Moscow excluded condensate when calculating the production cut target, which has a certain negative impact on market sentiment.
The next OPEC ministerial meeting will be held on March 5 next year. All parties will evaluate the effectiveness of the production cut order and plan the next production plan.
production cuts may not be enough to support oil prices
Since the pace of global economic recovery is still full of uncertainty, the fundamental expectations for supporting the continued upward trend of oil prices are not stable, and the game between bulls and bears will be reflected in the future fluctuation of oil prices.
For OPEC, this production cut is in danger of giving up market share. The International Energy Agency (IEA) said OPEC will face a "major challenge" in 2020 as competitors accelerate production, weakening its efforts to control oil production. The IEA predicts that the new non-OPEC crude oil production capacity will reach 2.3 million barrels per day in 2020. Oil fields in Brazil , Norway , Beihai and other places are gradually affecting the global energy supply map. Soon after, OPEC's share of global crude oil production may drop below 30% for the first time since 1991.
US shale oil production capacity has long made OPEC feel "a thorn in the back". Currently, the U.S. crude oil production capacity has risen to 12.9 million barrels per day, and has become a net oil exporter for the first time since summarizing oil import and export figures in 1949. The U.S. Energy Information Administration (EIA) expects production capacity targets to be continuously advanced. On the other hand, US President Trump 's tough attitude towards high oil prices also makes potential upward space for oil prices not sustainable.
In addition to fierce competition with the supply side, uncertainty on the demand side is also full of hidden dangers. The biggest potential risk comes from the slow economic recovery. The International Monetary Fund (IMF) lowered its global economic growth forecast this year to 3%, hitting a new low since the financial crisis, which poses a threat to the growth rate of demand. Capito Macro believes that major economies in Europe and Asia are still facing the trouble of shrinking factory vitality and declining import and export data. Factors such as weak demand and adequate inventory make it difficult for the market to avoid oversupply. Global economic growth is expected to continue to slow down in the coming months, thus curbing the growth rate of oil consumption.
The degree of disagreement between the views of the oil price trend next year is still huge. Varga was cautious. He analyzed to the First Financial reporter that Saudi Arabia's goal at this stage is not to achieve a sharp rise in oil prices, but to ensure that the market has strong bottom support in the first quarter of next year after Saudi Aramco completes its IPO to alleviate any possible seasonal weakness. Relatively speaking, rising demand in the second half of next year may bring oil prices to a trending market opportunity, and OPEC crude oil demand is expected to rise to 30.5 million barrels per day by then.
Jeff Currie, head of commodity research at Goldman Sachs, is relatively optimistic. He believes that OPEC+ production cuts are greater than expected and is expected to withstand the surplus of crude oil inventories in the future. It is expected that the price target of Brent next year will be $63 per barrel, up 3 US dollars from before the OPEC meeting, and the price target of WTI is $58.5 per barrel. Bank of America Merrill Lynch is actively bullish on crude oil futures, believing that the price of Brent crude oil will rise to $70 per barrel before the second quarter of 2020.
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