OPEC's excess production cuts
The monthly oil report issued by the Organization of Petroleum Exporting Countries (OPEC) on the 14th stated that the actual reduction of production by member states exceeded the requirements in the agreement and raised the global oil demand forecast. Analysts generally believe that international oil prices still have sufficient upward momentum this year under the influence of changes in market supply and demand and geopolitical risks.
OPEC excess production cut
The latest monthly report released by OPEC on the 14th stated that the OPEC’s oil-producing countries’ production cuts are still higher than the agreement requirements. According to data collected by OPEC from third parties, OPEC’s daily production in April only increased by 12,000 barrels to 31.93 million barrels. This is about 800,000 barrels lower than OPEC’s global demand for its daily oil this year.
Data reported directly by OPEC member states shows that the reduction is even greater. Saudi Arabia, OPEC’s largest oil exporter, said that its oil production had been reduced by 39,000 barrels per day to 9.868 million barrels in April, the lowest level since the January 2017 production cuts began to take effect. Venezuela said that production in April fell to an average of 1.505 million barrels per day, the lowest level in decades. Venezuela’s oil production plummeted due to the economic crisis.
The OPEC report also stated that the OECD countries’ oil inventories in March fell to a level of only 9 million barrels above the five-year average. In January 2017, this inventory was once 340 million barrels above the five-year average. The Reuters report pointed out that the main goal of the restricted production agreement is to reduce this inventory to a five-year average level.
In addition, OPEC also raised its pre-estimate of global crude oil demand in 2018 in the report. OPEC expects global crude oil demand to reach 98.85 million barrels in 2018, a year-on-year increase of 1.65 million barrels. Global demand for crude oil is strong.
OPEC believes that factors such as increased geopolitical tensions, tightened crude oil inventories, and strong global demand will support the recovery of the oil market in April.
In order to curb the downward trend in oil prices, non-OPEC oil-producing countries such as OPEC and Russia have reduced their production in cooperation since 2017. OPEC and other oil-producing countries such as Russia decided at the end of November last year to extend the existing crude oil production cut-off agreement until the end of 2018. According to the agreement, the major oil-producing countries reduced their total production by about 1.8 million barrels of crude oil per day to ease the oversupply situation in the market. In the past year and a half, oil inventories in major developed countries have fallen sharply to an average level of 2.85 billion barrels.
Since the limited production agreement of OPEC, Russia and other non-OPEC oil-producing countries came into effect, international oil prices have risen by 40%. After OPEC announced its monthly oil market report on the 14th, international oil prices continued to rise. As of the close of the 14th, the light crude oil futures prices for the June delivery of the New York Mercantile Exchange rose 0.26 US dollars to close at 70.96 US dollars a barrel, or 0.37%. July Brent crude oil futures prices in London rose 1.11 US dollars to close at 78.23 US dollars a barrel, an increase of 1.44%.
Rising oil prices have prompted oil producers outside OPEC to seek increased supplies, particularly to attract US shale oil to increase production. OPEC expects that non-OPEC oil-producing countries will increase their supplies by 172 million barrels per day this year, exceeding the increase in global demand. However, OPEC expects that these future growth will also face resistance. For example, the rapid growth of US shale oil production is increasingly limited by high logistics costs.
Geopolitical risks boost oil prices
The shortage of geopolitical risks is a major factor that has continued to support the sharp rebound in oil prices in the near future.
U.S. President Donald Trump announced on the 8th "retreat" and withdrew from the comprehensive agreement on Iran's nuclear issue and ordered the resumption of sanctions imposed on Iran for suspension of the agreement. Many people believe that this decision of the United States may bring about the risk of escalation of regional conflicts, affect the stability of oil supply in the Middle East, and trigger oil market shocks.
In July 2015, Iran reached a comprehensive agreement with the United States, Britain, France, China, Russia and Germany, promising to limit uranium enrichment activities and nuclear projects to civilian use only, in exchange for the United Nations, the United States, and the European Union lifting their economic and financial sanctions. .
Since the international community suspended Iran’s economic sanctions, Iran has returned to the ranks of the world's major oil-producing countries. According to OPEC's statistical data, Iran has proved that the recoverable reserves of crude oil is about 157 billion barrels, and the average daily oil production is about 3.8 million barrels. The oil production ranks third in OPEC and accounts for about 4% of the global oil supply. . Iran currently exports about 2.5 million barrels of oil per day, and most deals are with Asian trading partners.
After the United States “retreat”, the U.S. government’s sanctions against the Iranian energy industry, including the ban on U.S. companies and U.S. trading partners from purchasing state-owned Iranian oil companies and other state-owned companies, will produce oil, petrol and petrochemical products in Iran for 180 days. After the deadline, the full recovery began on November 4.
Chairman of the Eurasian Group, political risk consultancy in New York, Kupian Qian predicts that if the US sanctions measures are finally implemented, international oil prices will inevitably continue to climb. Hilma Croft, an analyst at Royal Bank of Canada Capital Markets, said that most investors expect the United States will impose sanctions on Iran in various fields such as energy, finance, trade, and insurance, thus affecting Iran’s crude oil exports.
Some insiders believe that if the United States re-imposes sanctions against Iran, it could lead to a reduction of Iran’s average daily crude oil exports by 200,000 barrels to 600,000 barrels. In the worst case, it may reduce 1 million barrels.
According to an analysis by Reuters, the oil market shocks triggered by the resumption of sanctions in the United States can be compared with the market response of Western countries after imposing sanctions on Iranian oil in early 2012. In the same year, Iran’s oil exports dropped to a daily average of slightly over 1 million barrels.
U.S. Moody's Analysts predicts that the restoration of sanctions will reduce Iran’s average oil production by about 400,000 barrels per day. However, this round of sanctions in the United States may not be able to achieve the “effectiveness” of 2012, because the United States and the European Union worked together this year. The EU clearly opposes U.S. policy.
It is reported that the leaders of Britain, France and Germany recently went to the United States to persuade Trump not to withdraw from the Iranian nuclear agreement, but all ended in failure. Trump announced on the 8th "retreat", the three governments made it clear that they will continue to maintain the Iranian nuclear agreement, I hope the United States will not obstruct.
The current rotating chairman of OPEC and UAE Minister of Energy and Industry Suhile Mazlui issued a statement a few days ago that OPEC is an apolitical organization and will continue to work hard to achieve "rebalance in the oil market (supply and demand) and investment in returning oil. Industry "goal.
According to reports, Saudi Arabia’s confrontation with Iran in the Middle East has intensified in recent years and it supports the United States’ withdrawal from the Iranian nuclear agreement. Saudi Arabia will do its best to maintain the stability of the global oil supply.
Rising oil prices
Analysts said that in the short term, the geopolitical risks in the Middle East will continue to affect international oil prices. In the medium to long term, the balance of supply and demand in the international market will dominate the trend of international oil prices, and the supply and demand situation indicates that international oil prices continue to rise.
Thomas Pew, a commodity analyst at the British macroeconomic consultancy, Kai Investment International, said that the geopolitical tensions in the Middle East have intensified recently. If Iran finally withdraws from the nuclear agreement, the impact on the international crude oil supply will be even more severe. Lead to international oil prices "at least in the coming months to maintain upward momentum."
Yang Tao, a partner of Analytical Capital Management, predicts that international oil prices will fall between US$60 and US$80 per barrel in the second half of this year. In the short term, uncertainties in the Middle East such as geopolitics and the direction of the US dollar will continue to support rising oil prices. At the same time, however, the slowdown in crude oil demand and the emergence of new energy sources will also restrain oil prices.
The increasingly balanced supply and demand in the market will continue to support the rise in international oil prices. Due to the expected impact of a balance between supply and demand, international oil prices have risen from $30 a barrel in early 2016. OPEC Secretary-General Barjinduo recently said that since January this year, the global crude oil supply situation has changed significantly.
Some industry insiders estimate that the oil market will suddenly tighten after years of excess supply. Erik Natal, a partner of Canada’s Toronto oil company “Nine-Point Partners,” said crude oil prices will rise to 80 US dollars a barrel next year, and inventory is expected to fall to the lowest level in 10 years at the end of this year.