"Production and price protection" negotiations fail, Saudi Arabia rarely "opens gates and releases water"
International oil prices start a plunge mode <br /> Xu Huixi
On March 9, the international financial market ushered in a thrilling moment. The Asia-Pacific stock market opened the first. The Nikkei gap opened lower by 922 points, a decline of 4.5%, while the Hong Kong Hang Seng Index opened lower by 3.9% and fell below 26,000 points. Correspondingly, international oil prices have started a plunge mode. Brent Crude Oil and West Texas Intermediate Crude Oil have fallen sharply and opened lower. Among them, Brent crude oil fell 25% to 34.52 US dollars per barrel at the beginning of the opening, and then the decline expanded to more than 31%, to 32.14 US dollars per barrel. West Texas Intermediate crude oil futures fell sharply by more than 22% at the beginning of the opening, and then expanded to 27% , Hitting a low of $ 30.05 / barrel.
Both the international capital market and the commodity market have ushered in a "Black Monday". This is due to the direct reason for Saudi Arabia's price cuts and increased production, as well as the oversupply of the international crude oil market.
On March 7, Saudi Arabia, the world ’s largest oil exporter, announced a comprehensive reduction in crude oil export prices, and the April crude oil exports to Asia, the Americas, Europe and the Mediterranean markets were generally reduced by US $ 5 to US $ 8 / barrel. According to analysis, Saudi Arabia ’s move aims to compete with other oil-producing countries for market share and attract more foreign customers to purchase Saudi crude oil. Such an initiative to significantly reduce oil prices exceeded the market's previous expectations of a decline of $ 1 to $ 2 per barrel. This is extremely rare in the history of Saudi Arabia, and it is the largest decline in the past 20 years.
At the same time when the price was announced, the Saudi side also issued a signal to the market: it plans to fully open its horsepower to increase the Saudi crude oil production capacity from the current less than 9 million barrels per day to 10 million barrels per day in April. It also claims that it can increase to a peak of 12 million barrels per day if necessary. Saudi Arabia is the only oil producer in the international energy market with a large surplus of capacity. Saudi Arabia simultaneously hit the "combination punch" of price reduction + production increase, which really shocked the international energy market.
Since the beginning of this year, the epidemic of new crown pneumonia has continued to spread globally, casting a heavy shadow on the outlook for world economic growth, and many institutions have lowered their expectations for world economic growth. For example, the OECD sharply lowered its global growth forecast last week and warned that if the new crown pneumonia epidemic is not well controlled, it may halve the global economic growth and cause countries such as the euro zone and Japan to fall into recession.
The spread of the epidemic has resulted in the cancellation of a large number of flights, the suspension of production by many enterprises, the depression of the tourism industry, the slowdown in the pace of global economic activity, the decline in demand for crude oil, and the weakness of international oil prices. In order to stabilize international oil prices, the Organization of the Petroleum Exporting Countries (OPEC), headed by Saudi Arabia, plans to take measures to "limit production and protect prices". On March 6, Ministers of Energy or Oil of 14 countries including Saudi Arabia and Russia held the OPEC + Energy Ministers' Meeting in Vienna, Austria. OPEC countries, led by Saudi Arabia, will extend the existing 2.1 million barrels / day production reduction plan to the end of 2020, while reducing production by an additional 1.5 million barrels / day, equivalent to about 1.5% of global demand. In terms of additional production reduction plans, OPEC member countries have cut 1 million barrels per day, while non-OPEC member countries have cut 500,000 barrels per day. Whether this plan can be implemented depends on whether non-OPEC oil producers including Russia support it.
It is regrettable to Saudi Arabia and other countries that at the OPEC + Energy Ministers' Meeting, the two sides ended the negotiations without success. Market analysts believe that the effect and purpose pursued by Saudi Arabia's pressing OPEC + production reduction is not clear, and its reasons are not enough to convince Russia. Because the recent drop in oil prices is mainly caused by the decline in demand caused by the epidemic, reducing production will not increase demand. Once production cuts push oil prices up to a certain extent, it may push the global economy down, but will put pressure on international oil prices again. On the Russian side, it did not agree with the reduction in production because it maintained its existing share in the international market and at the same time suppressed the formation of US shale oil and gas.
The accidental "discussion" of OPEC + energy ministers' negotiations meant that the two sides not only failed to reach an agreement on expanding production, but also that the production reduction agreement reached in December last year will expire at the end of March. In other words, starting from April 1st this year, the 14 oil producing countries of OPEC + will no longer be bound by the original relevant agreement quotas and can decide their own crude oil output.
Saudi Arabia cut prices and increase production, “opening the gates and releasing water” to the market, which shows that Saudi Arabia ’s unique position in the international crude oil market makes the international community feel the country ’s “right to speak”. While showing "muscles" to the world, Saudi Arabia was the first to taste the decline in oil prices. The sharp drop in oil prices directly affects the revenue of oil companies and is related to national fiscal revenue and expenditure. On the second day after the announcement of price cuts and production increases, the Saudi stock market fell sharply at the opening of the market. The stock index of the Saudi Stock Exchange fell sharply by 8.3% on the same day. Among them, the share price of Saudi Aramco plunged 9.1% to close at 31.7 rials. At the time of the IPO, the issue price of 32 rials was worth about $ 150 billion. Affected by the Saudi stock market, the Gulf countries' stock markets plummeted on March 8 and the single-day drop was the highest in the past 15 years. Among them, the Kuwait stock market fell as much as 10% and had to announce a suspension; the Dubai stock market closed down 7.9%, of which heavyweight real estate companies and banking stocks fell nearly 10%.
The new situation in the international oil market has caused the agency to further reduce its oil price expectations for the second quarter. Morgan Stanley predicts that Brent crude oil prices will fall to $ 35 per barrel in the second quarter, while West Texas Intermediate crude oil prices will be as low as $ 30 per barrel. The company had previously predicted that Brent crude would be $ 57.50 a barrel, and West Texas Intermediate crude would be $ 52.50 a barrel.