The scale of crude oil production reduction agreement is not as good as expected

Xinhua News Agency, Cairo, April 13: Financial and Economic Observation: The scale of crude oil production reduction agreement is not as good as expected

Xinhua News Agency reporter Yan Jing Tu Yifan

After many rounds of negotiations, the Organization of Petroleum Exporting Countries (OPEC) and Russia and other non-OPEC oil-producing countries have finally reached a historic reduction agreement. The analysis believes that the scale of the latest production cut agreement is still lower than market expectations, and its effect will depend on the future implementation of production cuts.

According to a statement issued by OPEC on the 12th, the scale of crude oil production reduction from May to June this year was 9.7 million barrels per day, from July to the end of the year was 7.7 million barrels per day, from January 2021 to April 2022 was 5.8 million barrel.

Although the production cut agreement finally landed, the market still pulled back after a short "excitement", and international oil prices fell instead of rising. The price of crude oil futures on the New York Mercantile Exchange fell on the 13th and fell back to the settlement price of the previous trading day several times. The price of London Brent crude oil futures also fell significantly during the session. Most major stock markets around the world also did not give positive feedback.

Although OPEC and non-OPEC oil-producing countries have reached a historic agreement this time, the scale of production reduction is still lower than market expectations. The forecast data of many analysis institutions show that due to the impact of the new crown epidemic, the global daily oil demand is expected to fall by more than 20 million barrels in the second quarter of this year.

John Sfakyaniakis, chief economist of the Gulf Research Center of the Saudi Arabian think tank, believes that this time OPEC reached the largest production reduction agreement in history, which will help the market inventory not increase in the short term, but the amount of production reduction is still insufficient. In order to make up for the global oil demand caused by the new crown epidemic, a sharp decline.

Goldman Sachs Group recently released a report, saying that the production cut agreement is "the most historical, but still not enough."

At the same time, high inventory levels have caused oil-producing countries to "overfill oil". Goldman Sachs predicts that crude oil prices will face further declines as reserve space becomes saturated, and it is expected that the price of crude oil futures on the New York Mercantile Exchange will continue to fall in the coming weeks, with a short-term target price of $ 20 per barrel.

Nomura Securities analysts believe that future oil prices will depend on the actual performance of OPEC and non-OPEC oil-producing countries. In the short term, the price of crude oil may remain above US $ 20 per barrel, but there may still be a possibility of falling below this mark in the future, unless the oil-producing countries carry out the production reduction agreement without compromise.

Previously, when OPEC member countries implemented production cuts below the planned level, Saudi Arabia would undertake excessive production cuts to make up for the gap. Some analysts believe that considering the scale of the new agreement's production cuts, the possibility of Saudi Arabia's excessive production cuts is greatly reduced.

Saudi Energy Minister Abdul-Aziz bin Salman told the media on the 13th that OPEC and non-OPEC oil-producing countries reached a historic reduction agreement, flexibility and pragmatism will guide the next oil policy. If there is a need in the market and other oil-producing countries are willing to reduce production in proportion, Saudi Arabia can even further reduce production.

He also said that, taking into account the latest production reduction agreement, the G20 members' production reduction commitments and the actions of countries to purchase strategic oil reserves, it is expected that the effective global oil supply reduction will reach about 19.5 million barrels per day.

Saudi Arabia ’s Arab TV station quoted OPEC sources on the 13th and reported that other oil-producing countries such as the United States, Canada and Norway are considering taking the initiative to reduce production.

US President Trump told the media on the 13th that he believes that the actual total output reductions of the world's major oil-producing countries are expected to be close to about 20 million barrels per day. He said such an "immortal" production cut agreement can help protect millions of jobs in the United States.

With the finalization of the production cut agreement, Saudi Arabia announced the official price of crude oil exports for May on the 13th after several delays. Saudi Arabian National Petroleum Corporation (Saudi Aramco) lowered the price of light crude oil sold to Asia by US $ 4.2 per barrel in May, raised the price to the US by US $ 3, and the price to Europe remained unchanged.