Under the influence of the gradual digestion of concerns about the global economic recession, commodity prices have rebounded from the rapid decline in the previous stage. In addition, affected by tight supply, international crude oil has risen for two consecutive weeks. Against the backdrop of escalating supply concerns, the market’s focus turns to this week’s upcoming OPEC+ ministerial meeting. At this meeting, OPEC and its allies will gather together to decide on oil production policy in September, and the meeting scheduled for August 3 will decide whether it listens to the call of the United States and provides more supply to the global market. More crude oil.
According to foreign media reports, Russian Deputy Prime Minister Alexander Novak and Saudi Energy Minister Abdulaziz bin Salman met in Riyadh on Friday local time and reiterated their commitment to the OPEC+ agreement and oil market stability. . It is reported that this is the first direct meeting between the heads of the energy departments of the two countries since June.
In fact, in order to ease the high level of inflation in the United States, Biden embarked on a four-day trip to the Middle East in July this year. This trip was to try to slow down Iran’s accelerating nuclear program, speed up the delivery of Middle Eastern oil to the United States, and Reshape relations with Saudi Arabia and call on it to further increase production.
Although Biden has met with the King of Saudi Arabia and the Crown Prince, Biden seems to have failed to get what he wanted on the key issue of “looking for oil.” The United States and Saudi Arabia have signed 18 agreements and memorandums of understanding, covering fields such as energy, investment, communications, space, and health. However, Saudi Arabia has not given a clear position on increasing oil production, which Biden values most.
However, Biden still believes that this “Middle East trip” will play a certain role in promoting the increase in oil production. The day after the visit, he said that Saudi Arabia is expected to further increase oil supply, which may help reduce gasoline prices in the United States.
For the international crude oil market, the upcoming OPEC+ meeting this week will reveal the “suspicious cloud” about increasing production. With OPEC+’s previous decision to continue to increase average daily production capacity by 648,000 barrels in August this year, it means that the production cuts caused by the new crown epidemic have been fully restored. Whether the production restriction mechanism and output targets are applicable in September and beyond has become the focus of this meeting.
“In fact, the current market expectations for OPEC+ to increase production are quite different. Some people think that there may be a slight increase in production, and some people think that there may not be an increase in production. The consensus is that the overall supply increase of OPEC+ countries is limited. Unless OPEC+ makes a decision that exceeds market expectations , otherwise it will not provide new drivers for oil prices.” said Dong Dandan, chief researcher of CITIC Futures Energy.
It is understood that OPEC countries currently have different attitudes towards increasing production. Dong Chao, a senior analyst at Shenyin Wanguo Futures Energy and Chemicals, said that specifically, Saudi Arabia’s attitude towards increasing production is relatively ambiguous, but it has stated that all production issues will be resolved within the OPEC framework. The United Arab Emirates, Iraq, and Kuwait have recently revealed their willingness to increase production. In addition, August this year was the first time OPEC’s new Kuwaiti Secretary-General took up his duties. The previous Secretary-General Barkindo promoted production cuts for six consecutive years, and the attitude of the new Secretary-General is also crucial.
“Since OPEC does not have a clear production agreement after September, countries can produce without restrictions, but the countries that can actually increase production are relatively limited. I think OPEC may reach a more vague production agreement, and the total production will remain unchanged during the year. Growth to a certain extent.” Dong Chao believes.
“Generally speaking, the market currently does not have clear expectations for an increase in production for the meeting.” Yu Pengsen, an energy researcher at Zhaojin Futures, further explained that because eight OPEC+ people have expressed their opinions, there is a high probability that the ministerial meeting on August 3 will Maintain current output unchanged. The current round of OPEC+ production restriction agreement will expire in August, but OPEC+ is more satisfied with the benefits brought by high oil prices, and most members do not want to throw away the hard-won high oil prices. However, there may also be discussions about increasing production. After all, low global inventories may trigger an energy crisis.
An Ziwei, senior energy analyst at Orient Securities Futures Derivatives Research Institute, said that the current scale of OPEC’s idle production capacity continues to decline, and the remaining idle production capacity is mainly concentrated in the hands of Saudi Arabia and the United Arab Emirates. After US President Biden visited the Middle East, Saudi Arabia expressed a more cautious attitude, but still It is possible to further release idle capacity.
“It is worth noting that the entire OPEC+ organization currently does not have the conditions for a substantial increase in production. Only a few countries in the organization still have idle production capacity, and that is Saudi Arabia and the United Arab Emirates. However, these two countries have always had a different attitude towards increasing production. Not active, which can be seen from the fact that European and American leaders have repeatedly urged them to increase production.” Dong Dandan said.
According to Yu Pengsen, the main issues currently surrounding OPEC+ are as follows: First, after the production reduction agreement expires, whether to continue to restrict the output of various countries, and if so, what will be the benchmark? The second is whether to increase production or not, and by how much. The third is how much capacity OPEC+ still has to increase production after several years of development and changes. At present, the main idle production capacity is concentrated in several major oil-producing countries within OPEC, such as Saudi Arabia, Iraq, and the United Arab Emirates. However, the production capacity that may be added in the short term is only 5 million barrels per day. Even if production can be increased by easing sanctions on Iran and Venezuela, the production capacity that can be increased by the end of the year will not exceed 8 million barrels per day.
Dong Dandan said that new oil field projects around the world will be very limited in 2022 and even 2023. target�The trend of crude oil depends on how much demand is reduced. High oil prices have also damaged demand to a certain extent. The growth rate of global land transportation and air flights has slowed down recently, especially land transportation has returned to pre-epidemic levels. , further improvement space may be limited.
However, Dong Dandan said that the monthly differences of crude oil show that the current physical market is still not abundant, and supply and demand are still slightly tight. Taking WTI as an example, oil prices may fluctuate between 90 and 110 US dollars per barrel. Domestic SC crude oil warehouse receipts continue to decline, and the trend will be relatively stronger.
“Currently, the supply side of the crude oil market is less negative, but this does not mean that oil prices will not fall. The demand side is equally important. The market is mainly concerned about the decline in demand caused by the economic recession. If there is a strong downturn in the euro zone and global economies, If there is pressure, then a decline in oil prices is possible. But it is almost impossible for oil prices to fall sharply by US$50-60 per barrel or fall into negative territory again,” Yu Pengsen said.
According to Zhong Meiyan, director of energy and chemical research at Everbright Futures Research Institute, this week’s OPEC+ meeting will continue the previous production increase level or increase production slightly, and the impact on prices will be limited. However, it should be noted that the geopolitical game is still continuing, especially when news broke last Friday that “Saudi Energy Minister and Russian Deputy Prime Minister Novak met in Riyadh to discuss cooperation between the two countries.” The OPEC+ alliance remains stable. It is expected that there will be no major impact on the supply side in the short term, and oil prices will mainly fluctuate upward.
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