The main disadvantage of this plunge in crude oil prices originated from the OPEC+ meeting that began last week. The meeting originally scheduled for the evening of July 1st, Beijing time, was postponed to the evening of July 2 due to ineffective consultations, and was then postponed again to the evening of July 5th. In the end, there was no result. The core contradiction of this meeting is that the UAE has a tougher opposition. Most oil-producing countries are in favor of extending the production cut period originally scheduled to end in April 2022 to December 2022, but the UAE has expressed firm opposition.
The main points of the UAE are: 1. It agrees with the plan proposed by most oil-producing countries to increase production by 400,000 barrels per day from August this year. 2. If the period of production reduction needs to be extended, it is required to adjust the previous production reduction baseline based on October 2018 as the standard to increase the country’s crude oil production space.
Although the recent OPEC+ meeting has maintained the monthly rhythm, no new resolutions have been made in the May, June and July meetings. The current output policy is actually still implementing the results determined in the April meeting, as follows:
1. OPEC+ oil-producing countries will increase production slightly from 35-35-45 from May to July.
2. Saudi Arabia will withdraw the additional production cut of 1 million barrels per day in phases. May, June and July were reduced by 25, 35, and 400,000 barrels per day respectively.
3. Some oil-producing countries reported additional production reduction plans and commitments.
4. OPEC+ will continue to hold ministerial meetings at the beginning of each month to assess the market environment and determine the output level in the next few months. Each adjustment will not exceed 500,000 barrels per day.
OPEC+ monthly output policy changes at a glance
It can be seen that the overall increase in output of 400,000 barrels per day from August has not caused much controversy, but if the period of production cuts needs to be extended, the UAE would like to obtain a separate room for increase in production. Compared with the October 2018 production reduction baseline, the UAE still has a gap of about 500,000 barrels/day. Therefore, the UAE’s individual willingness to increase production may be 500,000-700,000 barrels/day, but such a quota is difficult for Saudi Arabia to accept.
UAE crude oil production trend chart
It is worth noting that the UAE has always been a follower of Saudi Arabia in terms of policy, so the breakdown of this negotiation is surprising. When Saudi Arabia and Russia started a price war in March last year, it can be seen that the output of the UAE has also soared to about 3.8 million barrels per day, while the UAE’s crude oil output capacity is about 4 million barrels per day. It can also be seen from the other side that the UAE’s willingness to increase production may always exist, but it is just waiting for a suitable opportunity.
As the Iranian issue has dragged on for a long time, the market’s focus has begun to turn to OPEC+. Whether the divergence will expand, or even the UAE will unilaterally increase production, break the production reduction framework, and even risk a price war. This has become new negative pressure in the near future . However, in the current environment, the contradiction between Saudi Arabia and the UAE is not extremely sharp and completely uncoordinated. The probability of the UAE rashly increasing production or starting a price war is low. The market is still looking forward to the next OPEC+ talks to bring new guidance. It is expected that the negative consequences of OPEC+ output policy uncertainty will create downward pressure in the short term, but the duration may not be too long. Whether OPEC+ will hold consultations again before the scheduled meeting in early August is worthy of close attention.
At the end of July, Longzhong Information teamed up with China Petroleum and Chemical Industry Federation and other partners to invite industry giants to predict the upper limit of oil prices in the second half of the year. Looking forward to your arrival!
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