Source: economic reference
OPEC and non OPEC major oil producing countries announced after a ministerial meeting in Vienna on the 6th that they would increase the production reduction quota from the current 1.2 million barrels per day to 1.7 million barrels per day, and Saudi Arabia and other countries would continue to voluntarily implement additional production reduction.
Some analysts believe that the increase in production reduction is limited to the first quarter of next year, which is not as long as some OPEC oil producing countries had hoped to last for six months or one year. In addition, the outlook for global oil demand is not good. Therefore, the increase in production reduction of OPEC has Limited benefits for oil prices.
Production reduction increased by 500000 barrels / day
OPEC, as well as non OPEC oil producing countries such as Saudi Arabia and Russia (collectively referred to as “OPEC +”), reached an agreement in Vienna on the 6th local time to cut production by 500000 barrels / day from January 1, 2020, Reuters reported.
After achieving the above production reduction target, the production reduction scale of the major oil producing countries participating in the meeting will reach 1.7 million barrels / day. In addition, several countries, mainly Saudi Arabia, will increase the scale of production reduction, which will eventually lead to a reduction of 2.1 million barrels / day. OPEC and non OPEC partners began to implement a half year 1.2 million B / D production reduction agreement in January 2019, and then decided to extend the agreement to the end of March 2020 at the beginning of July this year.
According to the production reduction quota table published on the official website after the OPEC meeting, among the new production reduction scale of about 500000 barrels per day, OPEC countries cut 372000 barrels per day in total, of which Saudi Arabia is the largest, 167000 barrels per day; non OPEC oil producing countries cut 131000 barrels per day in total, of which Russia is the largest, 70000 barrels per day. Saudi energy minister Abdul Aziz bin Salman said oil producing countries would meet again in early March next year to decide on the next step, adding that “we are confident” that their cooperation will continue.
Saudi Arabia had previously warned that in the first half of next year, the international crude oil market will face a serious problem of oversupply, so it had a positive performance in reducing production. At the same time, Nigerian and Iraqi oil ministers have both said they want to reduce crude oil production.
Kazakhstan said in an official announcement on the 7th that it would support the decision through practical actions to reduce the daily oil production by an additional 17000 barrels. According to the notice, according to the production reduction agreement reached in December 2018, Kazakhstan’s oil production should be 1.843 million barrels per day. From January to November this year, Kazakhstan overfulfilled the production reduction quota.
The analysis shows that the oil production of “OPEC +” accounts for more than 40% of the total global production. The reason for the reduction is that some countries not participating in the reduction agreement, led by the United States, the world’s largest oil producer, are expected to increase production next year.
Saudi Arabia is the biggest driver of expanding and reducing production
As the core country of OPEC, Saudi Arabia is the promoter of expanding production reduction, because Saudi Arabia needs higher oil price to support budget revenue and initial public offering (IPO) of Saudi Aramco, the national oil company.
Saudi Aramco announced on the evening of the 5th that its shares are scheduled to be listed and traded on the Saudi Stock Exchange on the 11th of this month, and the final price of its IPO is 32 Saudi Riyals (about US $8.53). This means Saudi Aramco’s IPO will raise US $25.6 billion, becoming the largest IPO in the world. At that price, Saudi Aramco’s market value will reach $1.7 trillion. Although $1.7 trillion is enough to make Saudi Aramco the largest listed company in the world, it is still lower than the previous $2 trillion valuation of the Saudi royal family. Market participants estimate that when the oil price reaches $70 per barrel, the market value of $2 trillion will be possible.
Some analysts believe that in the short term, in order to boost Saudi Aramco’s share price and market value, Saudi Arabia’s purpose of increasing oil price through further production reduction was very obvious at the meeting of the organization of Petroleum Exporting Countries (OPEC) and non OPEC major oil producing countries.
Analysts believe that with the promotion of the listing of Saudi Arabia’s national oil company, Saudi Arabia, as the main driver of the production reduction agreement, is more willing to increase the intensity of production reduction, so as to keep the oil price within its expectation range, while relying solely on its own initiative to reduce production to maintain the oil price is becoming more and more difficult. The additional conditions covered in the agreement are intended to ensure the performance of other production reduction countries in the first place, and to encourage Saudi Arabia to further voluntarily reduce production.
But some analysts also pointed out that if production is cut for a long time, Saudi Aramco’s operating performance will be affected, which will affect investor confidence. Against the background of slow growth of international crude oil demand and increased supply from non OPEC oil producing countries such as the United States, Saudi Arabia’s oil policy of reducing production is not effective in raising oil prices. In order to increase Saudi Aramco’s share price, Saudi Arabia may increase its oil production in the future, and the oil market needs to be prepared for this.
Production reduction or limited benefit to oil price
There are signs that an important purpose of Saudi Arabia’s active promotion of production reduction is to improve the implementation rate of production reduction in other countries and reduce the burden of its own additional voluntary production reduction. This increase in production reduction will bring limited benefits to oil prices. Damian korwarin, an analyst at Goldman Sachs Group, said it was unclear what would happen in the second quarter of 2020, which may reflect Saudi Arabia’s new position that if other countries do not fully comply with the agreement, Saudi Arabia may no longer participate in the reduction.
Previously, it was widely expected that the production reduction countries would extend the production reduction agreement to the middle or end of 2020 and increase the production reduction at the same time. However, the reality is only in the first quarter of 2020 to increase the production reduction by 500000 barrels per day, accounting for about 0.5% of the world’s crude oil production per day. Although it may stimulate international crude oil price in the short term
IN ALL:
The supply of crude oil will directly or indirectly reflect the price of downstream products, like our stretch film, adhesive tape, blalala. We suggest that consumers buy on demand on short term. This market is too crazy to predict in the long future..
World-Packing Industrial
2019-12-09