• Direct opposition to extension of production reduction! Where will oil prices go in December?

    [ Time:2020-11-30 | Hits:56 ]

    The Joint Ministerial Committee (MMC) of OPEC was supervised by the Joint Ministerial Committee (MMC). An OPEC representative said that there was no agreement on the extension of the production reduction plan; most participants, including Russia, supported the extension of the current production reduction rate to the first quarter of 2021, while the UAE and Kazakhstan opposed it. The UAE questioned the compensatory cuts, pointing out that several OPEC + Member States had failed to fully comply with the agreement.

    Although four different policy options were discussed at the last jmmc meeting, there was no proposal that could be formally submitted to the OPEC Conference for consideration. At the time when the OPEC conference is about to be held, jmmc has yet to formally agree to any proposal. Although the idea of "extending the current production reduction efforts by three months" has won the support of most OPEC + representatives, the negotiation on production reduction quotas of individual countries has been carried out Last week, Iraq said that its tolerance for OPEC's "one size fits all" production reduction task arrangement reached the limit, and Nigeria also asked OPEC to consider the challenges it faces. Iraq and Nigeria are the oil producing countries with the lowest implementation rate of production reduction.

    At the end of last week, the market also came back with good news about vaccines. The United States and the United Kingdom are speeding up the vaccination work. The CDC of the United States will issue relevant suggestions on vaccination tomorrow. The head of the British national medical service system also said that the hospital will receive the first batch of vaccines produced by Pfizer and biontech as early as December 7.

    The market focuses on tonight's OPEC ministerial meeting. Can the resolution on extending production reduction be passed in the short term? Where will oil prices go in December?

    The prospect of prolonged production reduction is rough. How does the oil price go in December?

    For the good news of the vaccine, Yide futures analyst Chen Tong told reporters that at present, gasoline demand in major economies has recovered to 70% of that before the new outbreak, and diesel demand has also rebounded significantly, while the demand for aviation fuel has been difficult to return. The emergence of vaccines will help to lift the restrictions on international air travel and increase the demand for aviation fuel. However, the restrictions on travel and public gathering in various countries may be relaxed gradually and in stages after the vaccine market is launched. The marketing of vaccines may not boost the demand for crude oil immediately. This process may take six months or even longer.

    Haitong futures analyst Yang an said that the success of vaccine development is the most fundamental driving force for the upward shift of the focus of oil price valuation. After the impact of the previous good news of vaccines, the market expected to have fully digested such news, and the stimulation of the next news on the oil price was gradually weakened. Next, the vaccination schedule and the effect after vaccination are the urgent concerns of the market. The final result is very important to the oil price, which needs to be paid close attention to. At present, the vaccination progress is relatively ideal.

    "For OPEC, it is a basic expectation for OPEC + to extend the existing production reduction scale for three months. Especially when the oil price is lower than $40 / barrel, OPEC parties are very positive, and some suggest even extending the existing production reduction scale for six months. Therefore, if the news is finally settled down, it will have a positive effect on the market. Oil prices rebounded sharply from low levels in November. At present, oil prices have reached a relatively high level. Different views have been expressed within the Alliance for production reduction, including the United Arab Emirates and Iraq, which may form some resistance to the extension of OPEC + production reduction. In addition, even if the jmmc meeting reached a proposal of "extending the current production reduction intensity by three months", it was only a proposal, and the final decision of the ministerial meeting would still be up to us. The jmmc meeting in March this year also provided suggestions for production reduction, but in the end, the disagreement between Saudi Arabia and Russia still led to the collapse of oil prices, so the market will still focus on the final decision. " Yang an said.

    Chen Tong believes that there are still differences among OPEC + member states on the proposal to extend the production reduction for three months. Iraqi officials said the political and economic conditions of Member States should be taken into account before asking Member States to slow down oil production activities. UAE officials said the country was considering leaving OPEC because of difficulties in implementing strict production cuts. However, with the support of Saudi Arabia and Russia, the general assembly of OPEC probably approved a resolution to extend the production reduction plan, which is expected to lead to a supply shortage of 1 million barrels / day in the global crude oil market in the first quarter of 2021.

    Li Yanjie, general manager of China Securities construction investment futures Energy Chemical Co., Ltd., believes that the OPEC + meeting has been pushed to the top of the storm, and the decision made at the jmmc meeting held on the eve of the meeting can be regarded as the "embryonic form" of the decision of the OPEC + conference. At the last jmmc meeting, no proposal was formally submitted to the OPEC meeting, which shows that the current production reduction is going to a difficult stage: at present, the oil price basically covers Saudi Arabia, the United Arab Emirates and Kuwait The external balance of payments line of Witt and other countries is still a long way to go before the governments of these three countries avoid fiscal deficits by US $10-20 per barrel. Therefore, it is not difficult to understand that under the pressure of financial revenue distress and economic development constraints, countries relying on oil and gas exports (including Nigeria and Iraq) naturally have the idea of escaping from the production restriction. Therefore, in addition to Saudi Arabia, Russia and other major oil producing countries, internal friction such as dissatisfaction with the production reduction agreement is very understandable. At present, the market generally expects that the OPEC + conference will postpone production by at least 2-3 months. It should be reminded that if OPEC + fails to reach an agreement on delaying the current production reduction for 3-6 months at the end of the month meeting, it will become a major negative risk in the oil market in the near future.

    Looking ahead, Yang an said that there will be an adjustment process for oil prices in December. If the results of the OPEC + meeting exceed expectations, the oil prices may continue to be strong. In addition, whether the role of vaccines can satisfy the market is also a key factor. If the above two positive expectations can not be realized smoothly, the oil price may fall sharply again.

    "It is expected that the oil market will still be dominated by bulls in the short term, but the price rise in December may be slower than that in November. The assassination of Iran's nuclear scientist over the weekend has heated up the recent geopolitical situation once again. OPEC + is still inclined to extend the existing production reduction agreement for 2-3 months after the oil price rises, bringing confidence in the supply side. With the advent of the new crown vaccine, the expected good is still an important driver to boost market sentiment. The signs of peaceful transition of presidential power after the US election have released the market risk preference and helped the crude oil price rise. However, the negative risks and factors have not completely disappeared: there is still a risk that OPEC + can not reach an agreement on postponing production increase; the number of confirmed cases and deaths in the United States after Thanksgiving is likely to surge, and it will take time to wait for the vaccine to be launched and popularized; the number of new jobless claims in the United States has increased for two weeks, indicating that the recovery of the employment market is hindered, and the $3 trillion aid program will be implemented at Christmas The next round of economic stimulus bill may not be introduced until late January. As a result, the impact of the epidemic situation, employment and stimulus bill is exerting pressure on the oil price, and OPEC + poses a negative risk on the final decision of the production reduction agreement. The future WTI operates with reference to the USD 43-48 / barrel range, and it is recommended to re assess the risk after the OPEC + conference. " Li Yanjie said.

    Chen Tong believes that major economies will soon be vaccinated with the new crown vaccine on a large scale. In the medium term, the recovery process of global crude oil demand is expected to accelerate, OPEC + plan to delay production increase, and the bottom supporting policy and control are expected to boost oil prices. Previously, Libya's production increase has brought pressure on the market, but the spot market discount and the monthly difference of benchmark oil are strong, and the Asia Pacific countries are more active in replenishing their stocks. Even if OPEC + starts to increase production in the first quarter of next year, crude oil inventory will not necessarily accumulate, and the focus of oil price is expected to move further up.