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Original Caption: When Will 2 Million Barrel Production Capacity Be Released – OPEC Hesitates To Decide Or Announce Today
On Monday, the 180th OPEC Conference was held in the form of a videoconference. The countries discussed whether to extend the current production reduction agreement, but no consensus was reached. The final decision will be confirmed at Tuesday’s meeting and the OPEC + ministerial meeting held will be postponed until day 3.
Tamas Varga, a senior market analyst at crude oil brokerage PVM Oil Associates, said in an interview with a China Business News reporter that optimism sparked by the vaccine has supported recent oil prices, and the production cut delayed as well. it is reflected in the price. It is OPEC that will postpone the agreement to reduce production for three months to balance supply and demand, although there are certain internal differences, it is more likely that a consensus will finally be reached.
Part of the oil-producing country still has differences
Algerian Energy Minister Abdelmajid Attar, who holds the rotating presidency of OPEC, said in his opening speech that it is clear that the global deployment of vaccines takes time and its effects may start to show in the second half of 2021. He predicts that oil demand may remain weak in the first quarter of 2021.
Under the original plan, OPEC will cut its production reduction agreement from 7.7 million barrels per day to 5.7 million barrels per day starting in January next year. The sudden new wave of epidemic has impacted the demand for energy. All parties are discussing a number of options. This included a three-month postponement of production cuts, which was agreed to by most oil-producing countries, including Saudi Arabia, but the call for a gradual increase in production also received much support.
Russia’s attitude has faltered and tends to gradually increase production capacity. Kremlin spokesman Dmitry Peskov said on Monday that the differences between Russia and OPEC were not as severe as they were in early 2020, when negotiations broke down and production increased. He then said Putin had no plans to speak with Saudi leaders ahead of the OPEC + meeting, a move that used to help ease differences between the two major oil producers.
The epidemic has once again put the once relaxed relationship between energy supply and demand to the test. In its monthly market report released last month, OPEC lowered its forecast for world oil demand for 2021. Next year, oil demand will increase by 6.2 million barrels, a further reduction of 300,000 from the report of October. Barrels, and the forecast in July this year was 7 million barrels. OPEC believes that the expected downward adjustment mainly takes into account the adverse effects of the global economic outlook. “As the number of infection cases in the United States and Europe continued to rise in October, governments in several countries were forced to reintroduce some restrictive measures. Various energy requirements, including fuel for transportation, are considered to have been seen affected first, “the report said.
The recovery of production capacity in the United States is also becoming a threat Last week, international oil prices reached a new record since March, prompting a rapid recovery in the number of drilling rigs in the United States. Data from oil services giant Baker Hughes shows that the total number of active rigs in the United States has risen to the highest level since May. Producers have returned to the market, and the EIA from the US Energy Information Administration said last week’s daily crude oil production in the United States had rebounded to 11 million barrels per day.
In an informal discussion between oil-producing countries last weekend, most participants supported maintaining the current level of production restrictions until the first quarter. The media quoted the representative as saying that the recent spike in oil prices is solely due to the popularity of vaccines, but that the market has yet to expand to support prices in the future. The best option is to extend the agreement for three months, but the United Arab Emirates and Kazakhstan opposed this. .
On the other hand, the differences between oil-producing countries also stem from inadequate compliance with production cuts in some countries. Saudi Arabia may require Iraq and Nigeria to increase production cuts in the first quarter of next year to make up for the difference caused by the default. The leaders of the two countries appear to have lost patience with the production reduction measures. Nigeria previously requested an increase in production quotas due to internal economic pressure.
Institutions are cautiously optimistic
In the short term, market uncertainty caused by the epidemic persists. If the new corona pneumonia vaccine can be marketed quickly and widely vaccinated, it can boost the global economic outlook and stimulate demand for oil.
Fueled by vaccine news, investor excitement about the economic outlook has flared. Both Brent crude oil and WTI crude rose by more than 25% in November, representing the second-largest monthly increase for the year. The latest round of lockdown policies in the United States and Europe is not as strict as those of the spring and does less harm to economic activities. In addition, the recent economic recovery in Asia has recovered and crude oil purchases have increased. The overall energy demand situation has not deteriorated rapidly. Furthermore, institutions generally hope that if low US interest rates and huge stimulus plans are realized in the coming months, a weaker US dollar will further support oil prices.
Citigroup is relatively cautious and believes that the outlook for international crude oil supply and demand in 2021 remains bleak for the oil market bulls. Although progress is being made in vaccine research and development, there is still a long way to go to achieve universal immunization. Before that, the epidemic will continue to spread. At the same time, many industries, such as aviation and tourism, have been severely affected during the epidemic. Even if the virus disappears, it will take a long time to recover, which will continue to be a lasting drag on demand in the oil market. On the contrary, it is unstoppable for the OPEC + countries to further restore production capacity in 2021.
In the context of the above situation, Citi again revised down its original estimate of oil prices. The average price of Brent and WTI crude in 2021 is estimated to be just US $ 54 and US $ 49, 25% more than the current price. about.
Varga told CBN reporters that the results of the meeting will set the tone for oil prices in the coming months. Given weak demand fundamentals, it is believed that OPEC will eventually postpone its January production increase plan. If the negotiation fails and OPEC continues to advance in its plan to increase production of 2 million barrels / day, the supply and demand situation will face the risk of imbalance and it is necessary to be alert to the risks of market confidence short-term, which may cause oil prices to plummet in the short term.
Deutsche Bank’s latest forecast is that if OPEC does not postpone production cuts, international oil prices will plunge 10%.
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