On July 5, ministers of OPEC+ (OPEC), the main crude oil producer, canceled the oil production negotiations for that day. Since the UAE rejected the proposal to extend production restrictions for eight months last week, it means that OPEC+ has not yet agreed on how to increase production. Agreement reached.
It is reported that on July 4, Saudi Energy Minister Crown Prince Salman tried to fight back against the UAE’s opposition to the OPEC+ agreement proposal, calling for “compromise and rationality” in order to reach a consensus when OPEC+ meets again.
OPEC+ Secretary-General Barkindo said in a statement on Monday that the meeting had been canceled and the schedule for the next meeting had not yet been agreed upon. Affected by this, international crude oil prices rose sharply, hitting a three-year high. As of 10:30 on July 6, U.S. crude oil prices temporarily closed at $76.73/barrel, an increase of 2.08%; Brent reached an intraday high of $77.58/barrel, an increase of 0.54%. Industry insiders said that if the crude oil supply problem is not resolved, crude oil prices are likely to exceed US$80 per barrel in the short term.
The main crude oil-producing countries “each have their own agendas”, and talks between Saudi Arabia and the United Arab Emirates collapsed
Due to the impact of the new crown epidemic, OPEC+ agreed to a record production cut of nearly 10% last year. 10 million barrels per day, accounting for about 10% of global production. Production restrictions have been gradually relaxed and are currently about 5.8 million barrels per day. The UAE on Friday accepted a proposal from Saudi Arabia and other OPEC+ members to boost output by about 2 million barrels per day in stages from August to December, sources said, but the UAE refused to extend the current production cuts that end in April. Until the end of 2022. The country said it needs to reset its production baseline if it wants to extend the cuts.
The United Arab Emirates, which has invested billions of dollars in increasing production capacity, said the baseline set by OPEC+ was too low. However, countries can only renegotiate their respective baselines when the current output deal ends. Saudi Arabia and Russia now want to extend the agreement. Production cuts or increases are measured against a baseline number, and the higher the baseline number, the more oil a country is allowed to extract.
The UAE wants to revise its baseline before extending production cuts until the end of 2022, as it wants to produce more oil above current baseline quotas. OPEC+ sources said on Monday there was no change in the UAE’s position. They said the Joint Ministerial Oversight Committee, chaired by Saudi Arabia and Russia, needed more time to discuss the issue.
The UAE said it was not the only country seeking to raise the baseline, with other countries including Azerbaijan, Kazakhstan, Kuwait and Nigeria also requesting and receiving new benchmarks since the first agreement was reached last year. . The OPEC+ dispute exposed a growing rift between Saudi Arabia and the UAE. The two countries have forged a regional alliance that combines financial and military might to fight the conflict in Yemen and project force elsewhere.
According to reporters, the UAE has withdrawn from operations in Yemen, while Saudi Arabia attempts to challenge the UAE’s dominant position as the region’s business and tourism center. Chen Tong, an analyst at Yide Futures, told a reporter from China Times that OPEC+ canceled the meeting plan on July 5 after failing to reach an agreement, which means that oil-producing countries will maintain the current production level unchanged and will not be like Production is expected to increase in August.
Chen Tong said that Brent crude oil price exceeded 77 US dollars per barrel for the first time since 2018. It is difficult to find negative factors in the market now, and crude oil prices are expected to continue to rise in the medium term. Specifically, on the supply side, relevant parties to the Iran nuclear agreement have held multiple rounds of talks in Vienna since early April this year, and have still not reached a consensus for three months. After hard-line representative Lacey was elected as the new president of Iran, his wariness against the United States in nuclear negotiations will only become stronger. The market has postponed the date of Iranian crude oil’s return to the market many times. The road is currently looking to be long and difficult, and the prospects are unpredictable.
The breakdown of the OPEC+ negotiations will further aggravate the global tight supply of crude oil; on the demand side, global economic growth is expected to further accelerate, and the pace of recovery of developed economies continues to lead emerging economies. The latest “Global Economic Prospects” report released by the World Bank raised its global economic growth forecast for 2021 from 4.1% to 5.6%.
How far can OPEC’s production reduction and price increase routine go?
As disagreements arise within major crude oil-producing countries, some officials are already worried that an oil price war will break out if the deadlock continues. Iraqi Oil Minister Jabbar said he does not want a price war to occur, nor does he want oil prices to rise beyond the current level. He supports extending the current agreement until the end of 2022 and gradually increasing oil production, hoping to set a date for the next meeting within 10 days.
“Although the United States is not a party to the negotiations, it is paying close attention to the OPEC+ talks and their impact on the global economic recovery from the new crown epidemic. Government officials have been in contact with relevant parties to urge a compromise solution, In order to implement the proposal to increase production. It also means that the inflationary pressure caused by the rising oil prices in the United States has also reached the limit.” Zhong Meiyan, energy and chemical director of Everbright Futures, told reporters.
However, Chen Tong said that with the continuous advancement of vaccination and the reopening of the economy, the demand for road travel in Europe and the United States has been significantly released. Public transportation and work travel in many countries have reached their highest levels since the beginning of last year. Among them, the travel index of major economies in the Eurozone is only about 10% lower than before the epidemic, and the travel activity index in the United States fell by 6.5% compared with before the epidemic.
As travel restrictions are lifted, aviation kerosene consumption compared with land transport fuel demandHas greater room for growth. Goldman Sachs predicts that global demand will reach 96.9 million barrels per day in June and 99.23 million barrels per day in August, further enlarging the gap between crude oil supply and demand. In terms of liquidity, the probability of large-scale changes in the monetary policy stance of major economies in the third quarter is low, and money market interest rates will remain low.
Leading indicators of economic performance in Europe and the United States have fallen, and the market is worried that the economic cycle is gradually shifting from recovery to overheating and stagflation. However, according to the “Merrill Lynch Clock” theory, crude oil prices perform well whether in overheating or stagflation periods. “Taken together, we believe that the gap between supply and demand in the oil market is large, market risk appetite is difficult to reverse, and the mid-term upward trend of crude oil prices will not change. Brent crude oil prices are expected to reach above US$80/barrel in the third quarter,” Chen Tong said. .
At the same time, according to a report by UBS analyst Giovanni Staunovo, with no further supply from OPEC+ approaching, the oil market may tighten further and may cause Brent crude oil to climb to 100 per cent by the end of September. Barrel $80. The bank raised its September Brent and WTI crude oil price forecasts by $2/barrel; it raised its WTI oil price forecast to $77/barrel.
UBS said that market participants interpreted the no-deal outcome of the OPEC+ negotiations to mean that no more oil would enter the market in August. Given that negotiations between member states are likely to continue, OPEC+ could still reach an agreement in the coming days. It is unclear whether the failure to agree on a supply agreement will lead to a decrease in compliance rates in August, and the official August selling prices expected to be released by Saudi Arabia in the coming days should provide more information. </p
