Affected by the news of OPEC+'s sudden voluntary production cuts overnight, international oil prices opened sharply today, and the domestic crude oil market also rose sharply.
Sudden production cuts, oil prices soared!
On the evening of April 2, Beijing time, a number of oil-producing countries suddenly announced that they would voluntarily reduce crude oil production from May to the end of 2023. According to the production cuts announced by oil producers, the total OPEC+ production cuts exceeded 1.6 million b/d.
Affected by relevant news, on April 3, international oil prices opened sharply, and the domestic crude oil market also rose sharply. WTI crude opened nearly 7 percent higher on Monday, returning to $80 a barrel. As of the afternoon close on April 3, crude oil SC2305 rose 8.23% to close at 569.7 yuan / barrel. In addition, in the A-share market, the oil service engineering sector also rose 3.88% today, and all stocks in the sector closed up.
Interviewees pointed out that OPEC+ production cuts will have a certain boost to short-term oil prices, and the oil operating range is expected to be between $80/barrel and $90/barrel. However, this year in the face of a more complex demand environment, economic downward pressure and inflation have a negative impact on demand, and uncertainty about the demand outlook remains high.
The crude oil market was shaken
Specifically, WTI crude opened nearly 7% higher on Monday, returning to $80 a barrel. The domestic crude oil SC2305 contract also opened sharply, rising more than 7% in 1 minute. As of the afternoon close on April 3, crude oil SC2305 rose 8.23% to close at 569.7 yuan / barrel.
In addition, in the A-share market, the oil service engineering sector also rose 3.88% today. All stocks in the sector closed up, Hengtai Epp rose 8.93%, CNOOC Engineering rose more than 7%, and Zhongman Petroleum, CNOOC Development and Tongyuan Petroleum followed suit.
On the news, on the evening of April 2, a number of OPEC+ countries suddenly announced voluntary production cuts from May until the end of 2023.
Specifically, Saudi Arabia announced that it will voluntarily cut crude oil production by 500,000 barrels per day from May to the end of 2023; The United Arab Emirates announced a cut of 144,000 barrels, Kuwait announced a cut of 128,000 barrels, Iraq announced a cut of 211,000 barrels, Algeria announced a cut of 48,000 barrels, Kazakhstan announced a cut of 78,000 barrels, and Oman announced a cut of 40,000 barrels.
In addition, Russian Deputy Prime Minister Alexander Novak said on the same day that Russia voluntarily extended the measure of reducing oil production by an average of 500,000 barrels per day until the end of 2023 based on the average extraction level in February. Previously, Novak had said that Russia voluntarily cut oil production by 500,000 barrels per day from early March to the end of June.
According to the production cuts announced by oil producers, the total scale of OPEC+ production cuts exceeded 1.6 million barrels per day, and OPEC members cut production by nearly 1.1 million barrels per day, accounting for about 4% of OPEC's existing production capacity and about 1.5% of global average daily consumption.
Maintain the stability of the oil market
The sudden voluntary production cut of OPEC+ far exceeded market expectations, what is the reason?
It is reported that in early March, OPEC Secretary-General Al Ghais said that OPEC is currently working to maintain the stability of crude oil prices and avoid excessive market volatility. Previously, OPEC's 2020 production cuts saved the global oil industry from the brink of collapse. For now, the OPEC+ mechanism remains critical to the stability of the crude oil market.
"The voluntary production reduction by major oil producing countries is a preventive measure taken to maintain the 'stability of the international crude oil market'. Especially after the outbreak of European and American bank risk events, oil producers are also aware that the future demand outlook may continue to be unstable. Therefore, in order to maintain the stability and health of the global crude oil market, more consistent production reduction measures have been adopted. Cheng Xuefei, assistant director of the Energy and Chemistry Center of the Founder Mid-term Research Institute, analyzed.
Guo Yanpeng, a researcher at Zhonghui Futures R&D Center, believes that specifically, the reasons for the reduction in production in oil-producing countries are mainly as follows:
The first is to support oil prices and stabilize the oil market. In March 2022, the Federal Reserve began to raise interest rates, the global economy contracted, crude oil prices continued to decline from June 2022, and oil prices fell sharply after the thunder explosion in the European and American banking industries in March 2023, and the price touched many oil-producing countries, especially Saudi Arabia's fiscal balance price of $65 / barrel, OPEC+ production cuts to support oil prices, stabilize the oil market, and increase the fiscal revenue of oil-producing countries.
The second is to deal with global macroeconomic uncertainty. In March 2023, the banking industry in Europe and the United States continued to explode, and macro risks increased. Out of pessimistic consideration for the future economy, OPEC+ has actively reduced production in response to a more complex global macroeconomic environment.
The third is to deal with the delay of the United States in replenishing strategic crude oil reserves. After the outbreak of the epidemic, the United States reduced energy prices by releasing strategic crude oil reserves on a large scale to ease inflationary pressures, which in normal years are about 650 million barrels, currently 370 million barrels, and replenishment demand is about 250 million barrels. In October 2022, the White House administration said that it would replenish stocks when oil prices were at $65-72, but on March 23, 2023, the U.S. government planned to postpone the replenishment of strategic crude oil reserves and lowered the replenishment target price by $40/barrel, OPEC+ production cuts in response to reduced U.S. replenishment needs.
Fourth, it is out of political needs. In March 2023, the European and American banking sectors, including Credit Suisse, skipped the shareholders' meeting vote when dealing with the crisis, prompting the Swiss bank to acquire 90% of Credit Suisse for CHF 3 billion. In November 2022, Saudi Arabia invested 1.4 billion Swiss francs to acquire 9.9% of Credit Suisse's shares, and after the completion of this acquisition, Saudi Arabia's stake shrank to 300 million Swiss francs, which to a certain extent damaged the interests of major shareholder Saudi Arabia, so OPEC+ led by Saudi Arabia responded to Western challenges by reducing production.
"OPEC+ suddenly announced a production cut, the reason may be, on the one hand, the foreign media reported that OPEC+ is dissatisfied with the United States' recent statement of excluding SPR (Strategic Petroleum Reserve) replenishment. On the other hand, since the beginning of this year, oil price fluctuations have been greatly affected by the macro market, financial attributes prevailed, in mid-March the banking turmoil led to the sale of crude oil, oil once approached the 70 US dollars / barrel mark, the IMF measured by the Middle East countries this year fiscal balance corresponding to the average oil price of about 65 US dollars / barrel. We believe this move may indicate that producers are now more worried about potential further risks in financial markets in the future and that continued downward pressure on the economy may cause oil prices to fall below this support, and indirectly test that OPEC+'s lower tolerance for oil prices may be around $70/b. An Ziwei, senior analyst of energy and carbon neutrality at the Orient Derivatives Research Institute, said.
Boost short-term oil prices
"This production reduction and the timing of the production cut have greatly exceeded expectations, which will have a far-reaching impact on the crude oil market in 2023." Cheng Xuefei said.
Cheng Xuefei analyzed that from the perspective of production reduction, the reduction of the supply side makes the global crude oil market change from concerns about oversupply in 2023 to a certain supply gap. From the perspective of the production reduction time, the production reduction period is from May to the end of this year, and the long-term production reduction has indeed set the tone for the health and stability of the oil market in 2023.
"Under the condition that the elasticity of the supply side of crude oil is so low, the crude oil market in the future market needs to pay attention to the performance of the demand side. Under the background of the pace of the Fed's interest rate hike and the Fed's maintenance of high interest rates, if there are new risk events or cause a deep global economic recession, crude oil demand shrinks sharply, which may cause the risk of large fluctuations in crude oil prices. Cheng Xuefei pointed out.
An Ziwei believes that OPEC+ production cuts will have a certain boost to short-term oil prices, and the oil operating range is expected to be between $80/barrel and $90/barrel. However, this year in the face of a more complex demand environment, economic downward pressure and inflation have a negative impact on demand, and uncertainty about the demand outlook remains high. OPEC+'s production adjustment based on the risk of weakening demand in the future is to offset the negative impact of weaker demand on oil prices, and provide more bottom support for prices in the medium term.
"It should be noted that the United States may take countermeasures such as reserve dumping in the future, OPEC+'s game with the United States will intensify, and geopolitical risks may bring higher volatility to oil prices." An Ziwei emphasized it in particular.
Guo Yanpeng analyzed that "OPEC+ plans to start reducing production in May, then it is expected that from the second quarter, there will be a global supply gap, the scale is about 1 million barrels per day, and the price center of gravity will move up." At the same time, the United States may expand production capacity or ease sanctions on Iran and Venezuela in the future. ”
In addition, Guo Yanpeng also reminded that there are risks in the crude oil market, and the risks will be concentrated in macroeconomic and geopolitical aspects:
First, there is great uncertainty in the global macroeconomy. In 2022, the Federal Reserve began to raise interest rates "violently", in March 2023, the global financial system was turbulent, and the banking crisis broke out in Europe and the United States, from the initial Silicon Valley Bank, to the signature bank and Credit Suisse, the second largest bank in Switzerland, and recently Deutsche Bank also reported the risk of lightning, it is still impossible to judge whether the banking crisis will continue to spread and eventually lead to a global economic crisis.
Second, the Russian-Ukrainian conflict has not yet ended, and there is still great geopolitical uncertainty. In February 2022, the Russian-Ukrainian conflict broke out, the outbreak and advancement of the conflict exceeded expectations, so far the Russian-Ukrainian conflict has evolved into a tug-of-war, Ukraine has various support from Europe and the United States, which has long been unfavorable to Russia, and there is still great uncertainty in the Russian-Ukrainian conflict, which does not rule out the possibility that Russia will increase its offensive strength and means.
This article originated from Zhengji Fengyun