How much is the global crude oil supply gap? Need to add one Iraq each year
The Organization of Petroleum Exporting Countries (OPEC) held a meeting in Vienna on Friday (22th) and Saturday (23rd) to discuss whether to implement the increase in crude oil production. On the 22nd, the Minister of Energy and Oil of OPEC members of the Organization of the Petroleum Exporting Countries met at the OPEC headquarters in Vienna and decided to increase the current daily output of crude oil by 1 million barrels from July this year, but did not prevent the oil price from rising significantly. .
On Friday, NYMEX crude oil futures closed up 5.71% at $69.28/barrel, reaching a new closing high of one month, and the largest one-day gain since November 30, 2016, up 6.83% this week.
The OPEC communique stated that OPEC will make every effort to achieve a 100% reduction in production. According to sources, OPEC’s goal is to increase production by about 1 million barrels per day, which is also the target of Saudi Arabia’s increase in production. However, according to well-known insiders, the actual increase in production is likely to only reach about two-thirds of this goal. This is because some OPEC members will not be able to increase crude oil production enough.
In addition, the number of oil drillings in the United States this week decreased by 1 compared with last week, marking the first time since the last 12 weeks. Analysts said that pipeline restrictions have prevented further production growth in the future, and this month's drilling volume growth has begun to slow. In June, US oil drilling increased by only 3, the smallest increase since March. Executives of the oil companies stated that the pipelines in the Permian Basin will be saturated in the coming months, and some small oil producers have begun to slow or stop production.
Increase production and reduce production
On the one hand, OPEC member states such as Venezuela suffered from accidental collapse of crude oil output. On the other hand, Saudi Arabia, Russia and other countries have exceeded their expectations of implementing production reduction agreement since the beginning of the year. As a result, the global crude oil supply rate has recently declined faster than expected. The market is making From supply surplus to supply shortage.
In May this year, the number of oil drilling rigs in Venezuela fell to 28, a 10-year low. The oil production situation in Venezuela can be described as internal and external problems. First, the turmoil in its domestic political and economic situation has seriously affected the continuity of crude oil production. In addition, the U.S. sanctions against Venezuela severely limit its production possibilities.
GlobalData, a well-known data analysis company, predicts that compared to the 3 million barrels of crude oil produced in Japan in 2011, the daily production of crude oil in Venezuela will shrink to about 1 million barrels by the end of 2018, which will bring more instability to the international crude oil market.
In May, U.S. President Trump signed a new executive order requiring the ban on certain oil deals with Venezuela. GlobalData believes that compared with the previous targeted measures, the new sanctions measures are more symbolic, which will greatly limit Venezuela's crude oil exports to the United States.
In fact, the export of crude oil in Venezuela is already less than 700,000 barrels per day, which means that the domestic situation in Venezuela may further deteriorate, which may lead to the continued widening of the gap in Venezuela.
It is worth noting that Iran, another important oil-producing country, may again face the risk of sanctions from the United States by the end of 2018, which may cause Iran’s crude oil exports to decline by 1 million barrels/day or more, or lead to a further increase in the market supply gap. U.S. Secretary of State Pompeo recently said that it will exert unprecedented financial pressure and strongest sanctions on Iran. From the perspective of the 2012 EU foreign ministers' meeting and the United States’ decision to further expand sanctions on the Iranian oil industry and the financial industry, Iran’s oil production may have significantly declined.
Every year requires the addition of an Iraq
On June 21st, Majid Jafar, chief executive officer of petroleum company Crescent Petroleum, told CNBC that the current global demand for crude oil is very high and an Iraq or North Sea need to be added to make up for the deficiencies.
The Arabian oil company is one of the crude oil companies participating in the OPEC meeting. Jafar said that too many funds in the oil industry have distributed dividends, but the industry now needs more infrastructure. He pointed out that the current lack of investment in the oil industry has dropped by 50% compared with three or four years ago, and there has been no recovery.
The IEA’s recent report shows that global oil demand is expected to increase by an average of 1.4 million barrels per day in 2019, and that global oil demand will reach 100 million barrels by the second quarter of next year. Jafar said in an interview with CNBC: “We need to add one Iraq or North Sea every year and we really don’t know where to come from.” In addition, he said that he still optimistic about the production in the Middle East, the Middle East has half of the world's oil and natural gas, but the current output only accounts for 1/3 of the world.
The OPEC+ Dilemma Is Unprecedented
At present, OPEC+'s internal divisions are unprecedentedly severe. The support represented by Saudi Arabia and Russia substantially increases production and can increase production by 1.5 million barrels per day. On the contrary, countries such as Iran, Iraq, Libya, and Algeria have not been able to increase production for various reasons. There is a growing disparity between the above-mentioned big camps, and countries that cannot increase their production are unlikely to tolerate other oil-producing countries from seizing their own markets and squeezing their own interests.
A representative who understands OPEC's internal calculations said that the actual increase in production will be 600,000 barrels per day. Among OPEC members, Venezuela will almost certainly not be able to increase production because the economic crisis has hit the oil industry in the country. Of the other non-members' allies, Mexico's output is also unlikely to increase.
According to the latest news on June 23, the OPEC delegation stated that OPEC and non-OPEC countries have agreed to support increased production, and OPEC+'s discussion focused on increasing production distribution. The Iranian oil minister believes that the OPEC+ agreement will not increase production by more than 500,000 barrels per day.
Can oil prices look up to $82.5 this summer?
It is worth noting that last month OPEC’s production reduction compliance again reached a record high, which was a reduction of 2.5 million barrels per day from the output level before the reduction, which is more than the reduction target of about 700,000 barrels per day, which means that if the return With 100% compliance, OPEC still has about 700,000 barrels of production space.
Goldman Sachs analysts said that OPEC oil producers announced later this week that the prospect of increased crude oil production actually boosted crude oil prices. The continuous development of global crude oil supply-demand changes will continue to point to a further decline in crude oil inventories in the future, and oil prices will become higher in the second half of 2018. Therefore, we continue to believe that the risk of this forecast is biased upwards, even if crude oil prices have recently fallen due to concerns about demand and higher crude oil production by OPEC oil-producing countries.
Goldman Sachs predicts that the output of OPEC's core oil-producing countries and Russia will increase by 1 million barrels per day by the end of 2018, and will rise by another 500,000 barrels per day by the end of 2019. However, the impact of the increased production of OPEC and other oil producing countries on the market will likely be offset by the impact of the decline in supply in Venezuela and Iran.
Therefore, Goldman Sachs reiterated its previous forecast that Brent crude oil futures will reach US$82.50 per barrel this summer. Goldman Sachs concluded that the fundamentals of the ever-changing crude oil market balance indicate that the crude oil market is still in a state of supply shortage, due to the strong growth in demand for crude oil, and the increasing supply decline also requires OPEC’s core oil producing countries and Russia. Such countries increase crude oil production, thus avoiding crude oil stocks being out of stock at the end of the year.
Due to the continuous decline in crude oil prices in the international market, OPEC and non-OPEC oil producers jointly agreed to a production reduction agreement in 2016, reducing crude oil production by 1.2 million barrels per day. This agreement has been implemented for 18 months. Due to limited production capacity in some countries such as Libya and Venezuela, the actual reduction in output has exceeded the amount of the agreement. International oil prices continued to rise from about 27 U.S. dollars per barrel at the end of 2016, reaching a maximum of 80 U.S. dollars per barrel.
72.5% of total global natural gas imports in 2017 come from East Asia