OPEC giant calls for compliance with production reduction agreement, US may become oil market disruptor again

 OPEC giant calls for compliance with production reduction agreement, US may become oil market disruptor again

OPEC maintains stability but divergence looms

According to the official statement issued at the meeting, the Joint Ministerial Monitoring Committee of OPEC stressed the positive contribution made by the declaration of cooperation last year in supporting the rebalancing of the global oil market, and encouraged all participating countries to increase their efforts to achieve the goal of market rebalancing. At the same time, OPEC called on those countries that failed to meet the quota reduction quota to quickly fulfill their commitments. Although the implementation rate of OPEC + production reduction reached 102% in September, the highest level since May this year, the total compensation for production reduction was only 249000 B / D, far from meeting the target set by OPEC.

OPEC said the resurgence of the epidemic in Europe and the United States is having an impact on economic recovery and energy demand. Saudi Arabias energy minister, Abdel Aziz, said at the meeting: we are convinced that there is uncertainty and that all parties must be able to take measures to stop negative trends and developments and NIP them in the bud. Russian energy minister Novak is relatively optimistic. He believes that although the level of economic recovery has slowed down, there are still favorable factors such as the promotion of vaccine research and development, and the new blockade measures in various regions are relatively mild.

First finance reporter noted that in order to stabilize the supply and demand environment of the energy market, the worlds top two crude oil producers have conducted close communication in the past week. Russian President Vladimir Putin spoke with Saudi Arabias energy minister Abdel Aziz last week. The Kremlin said that OPEC + cooperation has proved effective in stabilizing the global oil market.

In fact, at the OPEC + Joint Technical Committee (JTC) meeting held last week, all parties discussed the main downward risks facing oil prices. At that time, OPEC Secretary General baljindu said that although the most serious moment of the crisis has passed, we can see that the second wave of epidemic situation has arrived in some regions. It is a long way to build a sustainable and flexible energy system through dialogue and cooperation for the benefit of oil producing countries.

According to the production reduction agreement reached by OPEC + in April, 23 Member States started the first round of production reduction from May 1, with a scale of 9.7 million barrels / day. At present, the agreement is in the second stage, and the scale of production reduction is reduced to 7.7 million barrels / day, and the term is until the end of this year. The detailed production reduction of 5.8 million barrels will be held from January to February, 2021. Previously, foreign media quoted Saudi Arabias senior oil adviser as saying that Saudi Arabia is considering delaying the relaxation of production reduction due to concerns about the market environment, which may face great resistance from OPEC.

Russia seems inclined to gradually reduce the scale of production reduction as planned. Energy minister Novak said in an article in the Energy Policy magazine of the Russian Ministry of energy last week that despite the coming of the second wave of epidemic, it is still optimistic about the demand prospect, and OPEC can gradually increase production according to the agreement without damaging the market. In addition, energy minister mazruyi of UAE, OPECs third largest oil producer, last week expressed his hope that OPEC will gradually increase production from January next year.

Varga told the first finance and economics reporter that if OPEC + can postpone the production reduction agreement again, it will certainly be beneficial to boosting oil prices. However, it seems that this proposal is difficult to be accepted by some members of the organization that are facing financial difficulties. The epidemic has dealt a huge blow to the economies of these countries. But if this is not done, according to the current market environment, the risk of falling demand may cause the international oil price to plunge again. For OPEC, how to resolve this dilemma is the biggest problem in the coming more than a month.

The risk of imbalance between supply and demand is brewing

For the crude oil market, the sluggish demand side growth is a big risk under the weak economic recovery. The International Monetary Fund (IMF) has lowered its global economic growth forecast for next year in its latest economic outlook. OPEC, IEA and EIA of the United States Energy Information Agency also revised down their forecasts for demand recovery in 2021 in their market reports released this month The EIA was cut by 240000 B / D and OPEC by 160000 B / d.

According to an internal document released by the media, the latest basic scenario forecast of OPEC + is that the oil market will experience an average shortage of 1.9 million barrels / day in 2021, compared with 2.7 million barrels / day in the previous month. The document also shows that under the worst scenario scenario scenario, the market may have a surplus of 200000 B / D in 2021, and the OECD commercial oil inventory will still be higher than the five-year average in 2021.

The impact of the epidemic in Europe on transport and industrial fuel demand is being closely watched. In a report, Marshall gittler, head of investment research at bdswiss, said the market is worried about how Europes increasing blockade will affect demand. At present, travel capacity in Europe has only recovered to 60% of the pre pandemic level. However, with restrictions on assembly activities in central and Western European countries once again, the demand for aviation fuel will be hit again.

On the supply side, Libya is becoming a source of uncertainty as the countrys largest salara oilfield has resumed production, producing about 300000 barrels a day. The IEA predicts that the cease-fire in Libya will bring local oil production to 700000 B / D in December and close to 1 million B / D next year.

Another big risk is the recovery of production capacity in the United States. First finance reporter noted that Baker Hughes announced in September that the number of active drilling platforms in the United States increased monthly for the first time since the peak in March fell back. The trend has continued until now, with the number of rigs rising to 205 in the week ending October 16, the highest since mid June. Varga told the first finance reporter that it will take time to confirm whether the U.S. crude oil production fully recovers from the covid-19 shock. At present, US shale oil and gas producers are preparing for a new round of potential attacks. If trump is not re elected, the Democratic Party will bring stricter drilling restrictions and higher tax requirements, and the living environment of producers may be further deteriorated.

Vitol group, the worlds largest independent oil trader, expects global demand to remain well below pre coronavirus levels for at least the next six months. Russell Hardy, Vitols chief executive, said last week that if the virus starts to subside, global energy demand is expected to rise to about 95% of last years level in the second quarter of next year, but it will be a bumpy journey. The coming winter in the northern hemisphere is a thorny problem, and the virus has reduced the recovery in demand. Hardy believes that world oil demand will peak around 2030, while oil demand in Europe and the United States has exceeded the peak. Source of this article: Guo Chenqi, editor in charge of first finance and Economics_ NBJ9931