After four consecutive months of falling international oil prices, OPEC and the alliance of non-OPEC oil-producing countries (OPEC+) are preparing to "defend" oil prices with a significant reduction in production. According to OPEC representatives, the alliance is considering cutting production by more than 1 million barrels per day to support the oil market, equivalent to 1% of global supply. If finally confirmed, this will become one of the largest production cut agreements since the outbreak of the new crown epidemic in the world.
Affected by this news, international oil prices rebounded sharply at the opening of October 3. As of press time, the two oils are still in an upward channel, and the price of Brent is counterattacking towards the $90 mark.
On October 3, oil prices soared sharply. The price of WTI crude oil futures for delivery on the New York Mercantile Exchange rose by US$4.14 to close at US$83.63 per barrel, a sharp increase of 5.21%; the price of Brent crude oil futures for delivery on the London Intercontinental Exchange in December closed at US$88.86 per barrel, a gain of 4.37%; the highest daily increase of the two oils reached 6.3% and 5.4% respectively, setting the largest intraday increase since July.
Pengpai News noticed that the OPEC official website announced on October 1 that it will hold the 33rd ministerial meeting of the OPEC+ cooperation mechanism on October 5 in Vienna . The OPEC+ alliance, composed of 23 countries, usually holds ministerial meetings every month to determine the output target for the following month. The meeting this month is quite special and will be the first face-to-face ministerial meeting since March 2020.
In addition, OPEC+ suddenly changed the established plan for online video conferencing and temporarily convened the Minister of Petroleum and his representatives to conduct on-site talks. These details make previous rumors of production cuts even more true: Unless a substantial reduction is planned, OPEC+ will not break the convention and convene face-to-face meetings at the last minute.
There is a view that as oil prices slide from the year-over-year high of $120 a barrel to around $80, the importance of this Vienna meeting may be comparable to that of the April 2020 meeting. At that time, the epidemic collapsed demand, and OPEC+ announced a record production cut of nearly 10 million barrels per day.
OPEC+'s production policy has always been a key variable that affects the crude oil market.
OPEC, composed of 13 member states, was established in 1960. The founding countries are all countries with rich crude oil reserves and high output. Their output accounts for nearly half of the world and their reserves account for more than 70%. As the US shale oil quickly seized the market, OPEC production and export volume began to decline. At the beginning of 2016, oil prices fell below $30 per barrel. OPEC, led by , Saudi Arabia, , wooed Russia and 10 other countries to form an OPEC+ alliance, promising for collective production cuts for the first time. In March 2020, the spread of the new crown epidemic caused a sharp shrinkage of crude oil demand. Russia refused to deepen production cuts with its ally Saudi Arabia. After the negotiations broke down, the price war began and international oil prices plummeted. But in the end, the epidemic dragged all oil-producing countries into the abyss. OPEC+ struggled to reach the largest and longest production cut agreement in history in April 2020, with the first round of production cuts reaching 9.7 million barrels per day.
A series of market support moves have achieved remarkable results. Oil prices, which once fell to negative values, returned to above $60 in February 2021. In July 2021, OPEC+ reached an agreement to gradually increase its monthly output from August of that year until the average daily production cut of 5.8 million barrels was gradually cancelled.
Brent oil price trend since this year
This year the sudden escalation of the conflict between Russia and Ukraine this year has caused the oil market to fluctuate. Since the second half of the year, global inflation has been high. Major economies such as Europe and the United States have suppressed inflation through radical hikes in and hibernation of interest rates. In addition, the strengthening of the US dollar and investors' concerns about a global economic slowdown have increased, which has suppressed oil prices and continued declines. Against this background, OPEC+ has repeatedly emphasized the policy goal of maintaining the stability of the oil market.
html At the meeting on August 3, OPEC+ announced a very weak increase in production, which is to appease the United States' call for increasing production without exhausting all idle production capacity and maintaining high oil prices. Saudi Arabia uses this to maintain a delicate balance with the United States and Russia. However, at the meeting on September 6, the participating countries reduced their production and rarely proposed to make continuous assessments of market conditions and be prepared to make rapid adjustments to production in different ways as needed, demonstrating the intention to stabilize prices.In recent times, many investment banks have called for OPEC+ to cut production to curb the decline in oil prices. UBS believes that OPEC+ needs to cut production by at least 500,000 barrels per day. JP Morgan global energy director christan Malek said that OPEC+ may need to cut production by up to 1 million barrels per day to "curb the downward momentum of oil prices."
analysts believe that OPEC+'s massive production cuts may arouse dissatisfaction from countries such as the United States, which are still fighting high inflation and recession caused by soaring energy prices. EU ban on Russia's crude oil will come into effect in early December, and oil-producing countries may face higher oil prices than they are currently in place after the implementation of production cuts in oil-producing countries.
"OPEC+ has never been so strong, they will do everything they can to ensure oil prices are supported, but the leaders of the United States and Europe are obviously not satisfied with the action." Ed Moya, a senior market analyst at OANDA, said in his research report. Viktor Katona, an analyst at energy data analysis company Kpler, said bluntly that only "OPEC+ can awaken the current sleeping oil price." There are still many unknowns in the Vienna Conference. Amena Bakr, a senior OPEC journalist at Energy Intelligence, revealed that talks between OPEC+ representatives suggest that the alliance may consider a 1.5 million bpd or more production cut, but it is not clear whether this will be staged.
On September 30, U.S. Treasury Department documents show that the United States has imposed a new round of sanctions on 285 individuals and 11 companies in Russia, including Russian Vice Premier Novak, who is in charge of energy work. It is not clear whether Novak will attend the OPEC+ Vienna meeting in person on October 5.
In the context of the aggravated European energy crisis, the relationship between Russia and OPEC is very solid. Russian President Putin spoke on the phone with Saudi Arabia Crown Prince Mohammed bin Salman on July 21, and the two sides emphasized the importance of strengthening coordination under the OPEC+ mechanism. In an exclusive interview with Kuwait media on July 31, OPEC's new secretary-general Hessem Gais affirmed Russia's important role in the international energy market. He said that Russia's participation in the OPEC+ mechanism is crucial to the implementation of the crude oil production agreement.
column editor: Zhang Wu Text editor: Yang Rong Title picture source: Tuchuang Creative Picture editor: Yong Kai
Source: Author: Pengpai News reporter Yang Yang
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