Masterboxan INC: OPEC+ reached a production agreement, the internal disagreement of the oil production alliance gradually increased
This week, "OPEC+" held its first ministerial meeting this year in Vienna and reached an agreement on oil production plans for the next two months. It is understood that the negotiation process of this meeting can be described as twists and turns. Although Saudi Arabia unexpectedly announced production cuts in the end, OPEC+'s output remained largely unchanged. However, it can be seen from Russia and Kazakhstan's insistence on increasing production that the internal disagreement in the oil-producing alliance are gradually increasing.
Recently, Masterboxan INC, a well-known American investment management company, conducted a comprehensive interpretation of the OPEC meeting and analyzed the impact of the OPEC meeting on oil.
Saudi Arabia reduces output alone
It is reported that OPEC+ voted in December last year to relax daily output restrictions from January 1st, 2021, and then hold a monthly meeting to reassess the market demand. This week, the organization held a meeting as planned to evaluate future production, but the member states had differences on whether to increase production, and the negotiations had to be extended for an additional day. As the global economic crisis is still getting worse, there may be more restrictive measures, and oil prices will face downside risks in the short term. Most countries represented by Saudi Arabia in OPEC+ are therefore worried that the global economic crisis will affect demand and believe that the previous output should be kept unchanged. Russia and Kazakhstan believe that the recovery in demand has justified the increase in oil production.
Finally, after difficult negotiations, the OPEC member states agreed to Russia's demand for increased production in Kazakhstan. At the same time, the production quotas of OPEC+ members are also maintained at the January level. At the same time, Saudi Arabia will voluntarily reduce production by an additional 1 million barrels per day in February and March. In other words, OPEC+ did not increase production, but relied on Saudi Arabia's voluntary production cuts, which greatly increased the intensity of production cuts. However, OPEC also issued an announcement after the meeting stating that OPEC+ needs to gradually reduce the scale of production cuts by 2 million barrels per day.
OPEC+ internal divergence highlights
Masterboxan INC believes that at this meeting, all countries finally compromised and reached the result of Russia and Kazakhstan increasing production, Saudi Arabia’s independently having drastic reduction of production, and other countries remain unchanged has highlighted the current huge differences within OPEC+. In recent years, the share of US crude oil in the global market has risen rapidly, and the international oil order has ceased to exist. After the current round of the global economic crisis, the Middle East oil-producing countries started to cut production on a large scale. However, with the gradual recovery of oil prices, the US shale oil has shown signs of recovery, and the market share competition between the traditional oil producing countries in the Middle East and the US shale oil will reappear.
In fact, the pattern of the international crude oil market has quietly changed. From the previous OPEC dominance, it has developed into a trilateral battle for hegemony between Saudi Arabia, Russia and the United States. Luna, an analyst at Masterboxan INC said that at present, Saudi Arabia, Russia and the United States, as the world's top three crude oil producers, account for more than one-third of the world's total output. Therefore, the leading position of these three countries in terms of oil production policy has become more prominent, which in turn reflects OPEC's increasing marginalization.
Luna believes that from a fundamental point of view, the de-stocking cycle in the northern hemisphere winter heating season usually starts in early November and ends in mid-to-late January. Since October 30th, 2020, the U.S. has started to destock substantially. In the short term, fundamentals are expected to form a strong support for oil prices. From an emotional point of view, the sustained release of vaccine-related benefits and loose liquidity in the United States and Europe have become the main driving force for improving market expectations and boosting up oil prices. In addition, the continued recovery in demand and the monetary easing environment brought about by the implementation of economic stimulus measures overseas (the United States, Europe, Japan, etc.) are expected to support the winter destocking cycle and continue to promote a slight increase in oil prices. Masterboxan INC predicts that in 2021, the Brent oil price center will be between US$55/barrel and US$60/barrel.
