November 30 is the third anniversary of the production reduction agreement reached by OPEC + 'with Saudi Arabia and Russia as the core. On this day, the international oil price fell sharply - WTI crude oil fell nearly 5% overnight, the largest decline in more than two months, and Brent crude oil also fell more than 4%.
In the face of this situation, what decision will be made at the upcoming 'OPEC +' ministerial meeting from December 5 to 6, which has aroused great concern in the international energy market.
International oil price shocks intensified
Although some analysts believe that the resignation of the Iraqi Prime Minister is the trigger for the sharp drop in oil prices, this factor is not the key reason.
Iraqi Prime Minister Mahdi announced his resignation, mainly due to the continued large-scale mass demonstrations and protests in the country. The mass demonstrations in Iraq have lasted for two months. Mahdi announced his resignation as early as the end of October.
As an important oil producer and exporter of OPEC, the continued turmoil in Iraq has indeed aroused the concern of the international community. However, at present, Iraq's oil production and export have not been directly affected, and the scale of Iraq's oil production and export has also shown an upward trend in the past ten years. The concern about the interruption of Iraq's oil export lacks historical and practical basis, and its voice in OPEC is also relatively limited.
The uncertainty of the "OPEC +" production reduction agreement and the increase of international crude oil supply are the main reasons for the change of market expectations and the sharp decline of oil prices.
On the one hand, various disturbances on the eve of the OPEC ministerial meeting have always stirred up the sensitive nerves of the international energy market.
OPEC led by Saudi Arabia and non OPEC oil producing countries represented by Russia formed an institutionalized cooperation mechanism three years ago, formed a more influential 'OPEC +' and jointly reached an agreement on production reduction that has lasted so far. At present, the internal policy differences of 'OPEC +' are more prominent, releasing contradictory signals, causing the outside world to be pessimistic about the prospect of the production reduction agreement, which leads to a sharp drop in international oil prices.
On the other hand, in the context of negative implementation of production reduction agreements and excess production by many 'OPEC +' Member States, the rapid rise of domestic production of other oil products has further raised concerns about the imbalance between international energy supply and demand.
The crude oil production of the United States, Brazil and other countries continued to grow rapidly. To a large extent, the production reduction scale of 'OPEC +' has been offset by the crude oil production increase of these non OPEC oil producing countries that do not participate in the production reduction, resulting in an increase in the expectation of global oversupply.
Recently, according to the data released by the U.S. Energy Agency, the oil export volume of the United States exceeded the import volume of 89000 barrels / day in September. It has become a monthly net oil exporter for the first time in 70 years. It is expected that the United States will become an annual net exporter in 2020.
In addition, considering the uncertainty of the world economic situation, the market is increasingly worried about the oversupply of crude oil in the future market.
The prospect of the "OPEC +" production reduction agreement is unclear
On December 5, the 'OPEC +' ministerial meeting will be held soon, and the existing production reduction agreement that will expire at the end of March 2020 is its core topic.
At present, the total output reduction is 1.2 million barrels / day, of which OPEC oil producing countries bear two-thirds, of which Saudi Arabia bears the largest share. However, as the two leading oil producing countries, Saudi Arabia and Russia, there are increasingly prominent policy differences and conflicts of interest on the issues of production reduction quotas, the implementation of production reduction agreements and the definition of condensate.
First of all, many oil producing countries such as Russia and Iraq have not strictly complied with the production reduction agreement and have been producing beyond the quota. Saudi Arabia, on the other hand, cut production beyond the quota most of the time, making greater sacrifices to maintain the agreement on production reduction. There has always been a conflict of interest between the two groups.
Recently, Saudi Arabia seems to be unwilling to implement the production reduction in excess, and may urge countries to strictly implement the production reduction agreement. However, Russia is still trying to reduce the constraints of the production reduction agreement on its oil production, hoping to exclude the condensate production from the production reduction index, emphasizing the difficulty of completing the production reduction in winter. This led to the further expansion of the differences between the two.
If the definition of condensate included in the production reduction quota is adjusted according to the requirements of Russia, the global oil supply will undoubtedly be further expanded. This will reduce the effect of the production reduction agreement and lead to the dissatisfaction of other member states with less condensate production, which will affect the stability of the cooperation relationship and the production reduction agreement.
Therefore, it is more difficult for OPEC + 'to maintain the existing production reduction agreement, and it is more difficult to reach an agreement to further expand production reduction.
It should be noted that OPEC and Russia still have a consensus on maintaining the production reduction agreement and preventing the collapse of oil prices. Facing economic difficulties, Russia highly relies on oil exports to drive economic growth. While putting forward new requirements, it also expressed its attitude that it does not want to change quotas. Saudi Arabia, which is promoting the listing of Aramco, also hopes that the oil price can be stabilized at a higher price. Both sides will not easily give up the production reduction agreement. All parties will still seek to reach a balance and maintain the existing cooperative relationship.
OPEC's recent report predicts that if the current production level is maintained, the international oil market will reach balance in 2020, which also shows that OPEC generally hopes to continue to reduce production.
If all parties fail to reach an agreement on production reduction, resulting in the fruitless conclusion of the meeting, it will undoubtedly have a great impact on the international oil market.
Therefore, in my opinion, the meeting is likely to decide to maintain the status quo and extend the existing production reduction agreements and national quotas for another half a year or more.