The results of the much-watched OPEC+ meeting have been released.
“Difficult” to reach an agreement to extend production cuts, oil prices still face greater pressure as they recover
After oil prices continued to rebound sharply last Friday to recover lost ground, the market is waiting for the final results of the OPEC+ meeting.
On June 4, the oil market ushered in a critical time, with OPEC+ negotiating “difficult” on production quotas and a new round of production cuts.
According to foreign media reports, OPEC+ negotiations have been delayed, and the focus of the meeting is the baseline level for each member country to calculate production cuts. OPEC+ representatives said African members remained opposed and were blocking an oil production agreement.
Market participants said OPEC+ will postpone formal negotiations as member countries discuss the calculation of production cuts and quotas. Negotiations are difficult as OPEC+’s most influential member and the Gulf’s largest oil producer is trying to persuade underproducing African countries such as Nigeria and Angola to set more realistic output targets.
After more than 5 hours of OPEC+ talks, the final result came out: OPEC+ agreed to adjust the production target to 40.46 million barrels per day from January 1, 2024 to December 31, 2024. Russia and Saudi Arabia’s voluntary production cuts remain at 500,000 barrels per day. OPEC+ extended the agreement to reduce production by a total of 3.66 million barrels per day in October last year and April this year until the end of 2024; at the same time, Saudi Arabia will implement an additional 1 million barrels per day in July. The additional cuts will last for a month and may be extended.
The crude oil production of OPEC and its allies led by Russia accounts for about 40% of global production, which means that the organization’s policy decisions may have a significant impact on oil prices.
Judging from the performance of the crude oil market, the reporter learned that the international crude oil market first declined and then rose last week. After three weeks of trading in a narrow range, oil prices have experienced very extreme swings over the past week. First, oil prices fell sharply by 8% in just two trading days at the beginning of last week, driven by investor concerns. They rebounded rapidly last Thursday and Friday, recovering most of the lost ground.
“Oil prices fluctuate sharply because investors are not optimistic about the crude oil market at this stage, and at the same time there is obvious uncertainty. This performance is also in line with the crude oil market’s overall oscillations and repeated characteristics due to the interweaving of long and short factors since the first half of this year. But it obviously brings difficulties to investors’ transactions.” Yang An, head of energy and energy at Haitong Futures, said.
After the opening of trading on June 5, the main WTI crude oil contract once surged by more than 4%, hitting a one-month high of US$75.06/barrel. As of press time, the increase has narrowed to about 2%.
From the perspective of cross-regional price differences, the domestic price performance is stronger than the international oil price. Faced with the general weakness of domestic industrial products, the market began to look forward to the policy bottom. In mid-to-early May, the pattern of domestic weakness and external strength was restored again.
According to Gao Mingyu, chief energy analyst at SDIC Essence Futures, the sharp fluctuations in crude oil prices last week generally revolved around the tortuous process of passing the U.S. debt ceiling and the outlook for the OPEC+ June meeting.
“On May 27, Biden and US House of Representatives Speaker McCarthy reached an agreement in principle on the debt ceiling issue, which will suspend the current $31.4 trillion debt ceiling constraints before January 1, 2025, and provide the basis for the 2024-2025 US Congress has set a cap on discretionary spending. However, some representatives of the far-right Republican Party have indicated that they may oppose the agreement. The market was once concerned about whether the bipartisan Congress could successfully vote to pass the agreement before the United States faces a debt default on June 5. Worried.” Gao Mingyu said that as of June 2, the U.S. House of Representatives and the Senate finally passed the agreement, and the sentiment of risk assets represented by crude oil has once again begun to recover.
In addition, international oil prices have returned to the low level in March when the U.S. banking crisis was exposed. Whether OPEC+ will once again stage a preemptive and substantial production cut deserves great attention. However, judging from the previous statements of Saudi Arabia and Russia, there are certain differences between the two sides. Saudi Arabia reminded short sellers of crude oil futures speculation to “be careful”, but Russia seemed to have no motivation to continue to reduce production when faced with crude oil prices that were not higher than the price limit. On June 4 The market remains cautious ahead of the OPEC+ ministerial meeting.
“Judging from the previous market baseline expectations, OPEC+ has just entered the fulfillment period of the April production reduction agreement, and the leaders Saudi Arabia and Russia have obvious differences in their attitudes towards further production reductions.” Gao Mingyu said.
Since October last year, OPEC+ has begun active expectation management to maintain the stability of the crude oil market, which has largely alleviated the risk of a sharp drop in oil prices. Since the beginning of this year, the overall oil price has shown a pattern of sharp oscillations and a slow shift in the center of gravity. This is typical The long and short power stalemate stage.
In fact, since the second half of last year, the main trading line of the crude oil market has transitioned from the previous energy crisis to recession trading. The outbreak of the European and American banking crisis in March this year has deepened this main line.
“As long as OPEC+ does not take additional measures, we consider the relatively pessimistic scenario that Europe and the United States will not be able to avoid economic recession this year and next. Crude oil prices may continue to oscillate at a low level in the second half of the year. Although they will not collapse significantly, their upward elasticity will also is obviously restricted.” Gao Mingyu said that entering 2024, if this “shallow recession” model furtherAbove, long PE and short PP have become the main trend. In terms of cost-profit logic, for example, in the polyolefin industry chain, methanol can be used as a raw material for polypropylene. In actual operation, under the operating logic of different varieties, the price difference of PP-3MA has expanded significantly. This year, chemicals are generally experiencing low or even negative profits. From a market perspective, the hedging strategy of short PP polymethanol has become the current mainstream allocation strategy. ” Lu Jiaming introduced.
In addition, there are also allocation strategies based on the strength and weakness of spot prices within the crude oil sector. For example, although PTA has its own weak supply and demand this year, compared with the price performance of ethylene glycol, the operating trends of PTA and crude oil are closer due to pricing factors. Therefore, when crude oil prices began to rebound, long PTA and short ethylene glycol became the mainstream allocation strategy in the market.
Buoyed by optimistic expectations for the OPEC+ meeting, chemical products and crude oil futures began to rebound last Friday. “From the perspective of trend strategies, the expected recovery logic can be traded in the short term. Those varieties whose supply and demand are still acceptable can choose to go long on dips while crude oil rebounds.” Lu Jiaming said.
“At present, many products in the chemical industry chain are still in the production cycle. For example, PTA, on the one hand, there are expectations of excess from raw materials to chemicals, and inventories are also constantly accumulating; on the other hand, the cost end is constantly moving downwards, which in turn makes the industry Profits have been restored.” Dai Yifan, an energy and chemical analyst at Nanhua Futures, believes that while demand has not improved significantly, many excess chemicals may still be in a price bottoming trend to drive upstream negative feedback, causing the overall inventory to be reduced, and the industry The chain structure is improved.
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