According to a report by Xinhua News Agency on July 21, according to news released on the Russian President’s website, the leaders of Russia and Saudi Arabia made positive comments on the development level of bilateral friendly relations during the phone call and discussed key issues of bilateral cooperation, especially the expansion of economic and trade. work together. Saudi Arabia and Russia discussed the current situation in the global oil market and emphasized the importance of strengthening coordination under the “OPEC+” mechanism. Both parties stated that relevant members of “OPEC+” have consistently fulfilled their obligations to ensure the necessary balance and stability of the global energy market.
The conversation took place six days after U.S. President Joe Biden visited Saudi Arabia to seek increased oil production to reduce high inflation in the United States, but Saudi Arabia has not committed to increasing oil production to reduce fuel prices.
“In the past two years, the cooperation between Saudi Arabia, Russia, and OPEC+ has been very successful. It has not only resolved the huge inventory pressure caused by the epidemic, allowing oil prices to smoothly return to high levels, but also re-established a sense of confidence in oil prices during the cooperation process. Core influence.” said Yang An, head of energy research and development at Haitong Futures.
Yang An said that for Biden’s trip to the Middle East last week, the market generally expected that the United States would ease relations with Saudi Arabia and allow OPEC to increase crude oil supply to further suppress oil prices and help the United States ease inflationary pressure. The phone call between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, six days after his visit to Saudi Arabia, emphasized the importance of further cooperation within the OPEC+ group of oil producers. We can see that in the oil market, the United States, Russia and Saudi Arabia, the world’s top three crude oil producers, are directly competing for their interests. Judging from the communication between the three countries, it is obvious that Saudi Arabia mediates between the United States and Russia, and its final orientation will have a decisive effect on the crude oil market. Although Biden and Saudi Arabia reached an agreement on the stability of the energy market during his last trip to the Middle East, there are certain differences in understanding based on their own perspectives. U.S. President Joe Biden said that in the coming weeks we will see further steps by Saudi Arabia on energy and is expected to see steps to further expand oil supplies. Saudi Arabia stated that Saudi Arabia cooperates with OPEC+ to ensure adequate supply. Saudi Arabia is working with OPEC+ to provide appropriate (oil) supply, and oil production decisions will not be based on “hysteria” or “politics.” The phone call between Russia and Saudi Arabia obviously further clarified the development direction of the incident. OPEC+ will still maintain cooperation to ensure the stability of supply. However, Saudi Foreign Minister Prince Faisal recently stated that he does not believe there is an oil shortage in the market. However, refining capacity is insufficient, so it is expected that Saudi Arabia and other relevant parties will only promise to ensure supply at the OPEC meeting in August, but they are not expected to increase supply significantly beyond expectations.
According to Dong Chao, a senior analyst at Shenyin & Wanguo Futures, the call between Putin and Saudi Arabia is more of a response and confirmation of Biden’s visit to Saudi Arabia. “At present, Saudi Arabia will still place the adjustment of production within the overall agreement framework of OPEC+ for its own national interests and will not act alone. This is also the way to best exert its influence. The dialogue between Saudi Arabia and Russia has also been strengthened this time The connection between Saudi Arabia and OPEC. However, this does not mean that Saudi Arabia will not increase production in the future. In June, OPEC increased the production rate from 400,000 barrels per day to 600,000 barrels per day, which was also supported by Russia. “Dong Chao believes that in the long term, the OPEC+ organization headed by Saudi Arabia and Russia will cooperate more closely. In the short term, that is, in August, OPEC is likely to reach an agreement to slowly increase production during the year.
The macro factors that have previously caused continuous disturbances to the international crude oil market have emerged in new situations. The European Central Bank raised interest rates for the first time in 11 years, and the rate hike exceeded expectations by 50 basis points. However, the crude oil market’s reaction to this move was relatively muted.
In this regard, Yang An believes that the purpose of the European Central Bank’s interest rate hike is to control inflationary pressure on the one hand, and to try to save the euro’s decline on the other hand. However, the interest rate hike is stronger than expected, and the liquidity tightening it brings and the impact on the economy The downward pressure is also real. Investors have clearly shown hesitation in reacting to the European Central Bank’s interest rate hike, and the impact is expected to be relatively limited. In addition, financial markets will also face the impact of the Federal Reserve’s July interest rate meeting next week, so investors will soon shift their attention to the Fed’s actions.
Dong Chao believes that the ECB’s higher-than-expected interest rate hike will have a certain impact on the European market from an economic perspective, causing the already weak European crude oil demand to further decline. However, as the U.S. dollar has recently exceeded 1 against the euro for the first time in 20 years, Europe Raising interest rates by the central bank is also a reasonable response. From an exchange rate perspective, this move can also put some pressure on the continuous rise of the US dollar and thus benefit oil prices. Therefore, multiple factors offset each other and the market reacted less to the ECB’s actions.
In fact, overnight crude oil has fallen significantly in the past two trading days, but Yang An said that the recent sharp declines in Brent and WTI crude oil prices were not affected by the macro level, but by the sharp drop in gasoline and diesel prices in Europe and the United States. Influence.
“As more and more data show that the demand for refined oil products in Europe and the United States during the traditional peak season is lower than expected, the price of gasoline and diesel has dropped significantly. In particular, the profit from gasoline cracking has dropped from the previous high to near the upper edge of the relatively normal range. The demand side has become the source of oil.an important factor in price cooling. At the same time, Russia announced that after completing a series of technical maintenance on the 21st, the ‘Beixi-1’ natural gas pipeline has begun to resume gas supply. In addition, the Libyan Oil Minister said that Libyan oil production will return to 1.2 million barrels per day within 7 to 10 days, and supply-side concerns have also quickly cooled down. This caused oil prices to fall by more than US$5 per barrel during European time. “Yang An explained.
Dong Chao also believes that the recent sharp drop in international oil prices is mainly due to two factors: the restart of “Beixi 1” and the resumption of production in Libya. “There was a concern before that Russia would take the opportunity of the maintenance of Nord Stream 1 to suspend the supply of natural gas to Europe, thus exacerbating its energy crisis. However, on the 21st, the Nord Stream 1 natural gas pipeline restarted as scheduled, and the transportation volume reached the pre-maintenance level. . European natural gas prices fell rapidly, and at the same time, crude oil prices fell sharply before the opening of night trading. In addition, there was news of the resumption of production in Libya. Libya’s total production capacity is about 1.2 million barrels per day, and the current output is only 400,000 barrels per day. But With the lifting of force majeure on previously blocked ports, the Libyan Oil Minister expects crude oil production to return to 1.2 million barrels per day within 7 to 10 days,” he said.
In Dong Chao’s view, in addition to insufficient demand caused by the macro environment, the main factors affecting oil prices currently are OPEC production. The OPEC meeting on August 3 is the first meeting after the new OPEC Secretary-General takes office. The previous Secretary-General Barkindo started production cuts for six consecutive years after taking office. This meeting will also set the tone for the work of the new Secretary-General.
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