Original title: No more?
Source: Lookout think tank
OPEC + finally reached a historic production reduction plan on the evening of April 12.
The OPEC + meeting that started on April 9 didn’t settle until the evening of April 12, and the process went up and down. Mexico refused to cooperate, and the G20 did not mention production cuts. However, OPEC countries led by Saudi Arabia and non-OPEC countries led by Russia finally reached a historic output reduction agreement, which ended the oil price war with serious consequences.
Behind the outbreak of the price war in March, the re-scramble and redistribution of market shares by the three major oil-producing countries are important reasons. However, the destructive and impact of the new coronary pneumonia epidemic in the world, especially in Europe and the United States, caused the collapse of oil demand. This price war became a war launched at the wrong time.
The negotiation of the production cut agreement has led to the strongest in the United States, Saudi Arabia, and Russia in the three major oil-producing countries. However, the deep structural contradictions of the three countries of the United States, Russia and Russia have not been resolved. The current peace between the three countries is a temporary concession to the current extremely distorted market.
The question now is: At a time when oil demand has plummeted due to the new crown epidemic, is such a reduction in production sufficient to support prices?
Text | Zhang Longxing, , Director of Oil Products Business Unit, Shanghai Oil and Gas Exchange Center,
OPEC + confirmed that the first round of production cuts for a two-month period from May 1, 2020, with a reduction of 9.7 million barrels per day; from July 2020, cut production by 800 10,000 barrels per day to December; from January 2021, the output will be reduced by 6 million barrels per day to April 2022.
OPEC + will cut 9.7 million barrels per day of crude oil output, slightly lower than the originally planned production cut of 10 million barrels per day. It seems that Mexico has won a diplomatic victory and only needs to cut production by 100,000 barrels per day, which is lower than the scale that should be cut proportionally.
For the oil market, the supply-side efforts to stabilize the global oil market are unprecedented. In such a short time, it has coordinated so many countries to reach a sincere and satisfactory agreement, which highlights the comprehensiveness of the global crude oil market. Entering the era of the killing of the three countries of the United States, Russia, and Russia, the OPEC that used to thrive in the past is gradually declining.
Double supply and demand, the price war is difficult to continue
Following the March 6, OPEC + production cut negotiations in Vienna broke down.
At that time, the differences between the parties were that
the OPEC countries headed by Saudi Arabia requested an additional output of 1.5 million barrels / day in the second quarter. At the same time, the 2.1 million barrels / day output reduction reached at the end of last year and implemented on New Year’s Day this year was maintained until the end of this year. The total output reduction reached 3.6 million barrels per day. In the plan to reduce production by an additional 1.5 million barrels per day, OPEC bears 1 million barrels and countries outside OPEC bear 500,000 barrels.
The attitude of non-OPEC countries headed by Russia is to maintain the current scale of production reduction until the end of the second quarter.
On March 7, Saudi Arabia sharply lowered the discount of crude oil official price sales (the discount of the actual sales price relative to the benchmark price). In the Asia-Pacific region, the discount for the Arab light crude oil decreased from +2.9 USD / barrel to -3.1 USD / barrel, a decrease of 6 USD / barrel; the discount for Northwestern Europe was 8 USD / barrel; the discount for the Mediterranean region was 7 USD. /barrel.
Such a huge price reduction, coupled with Saudi Arabia’s announcement that crude oil production will increase from 9.73 million barrels / day in January this year to 12 million barrels / day, the supply side surplus is clouded.
At the same time, the New Coronary Pneumonia epidemic began to erupt in the world, especially in Europe and the United States. On March 11, the United States announced that the United States will suspend travel from all European countries except the United Kingdom to the United States on the 13th. This measure will last 30 days.
In 2018, the global GDP was 85.791 trillion US dollars. In the same year, the annual GDP of the United States and 28 EU countries were 20.494 trillion US dollars and 18.74 trillion US dollars, accounting for 45.73% of the global GDP. Trans-Atlantic exchanges between Europe and the United States were cut off. The financial market under the dollar hegemony system is undoubtedly a major blow, and US stocks have melted down several times. Under the closure of the European and American countries, the demand was ruthlessly strangled, the supply-side price war was fierce, and the commodity nature of oil caused the price of oil to fall and fall again.
A few days ago, the Minister of Energy of Alberta of Canada stated that the global crude oil demand may be reduced by 20-35 million barrels per day, which is basically the range of demand collapse recognized by the market. The global crude oil daily demand is 100 million barrels per day under normal conditions. The huge pressure of oversupply at the spot end drives the market to have a deep positive market structure. Onshore and offshore crude oil storage demand continues to soar, and crude oil freight rates have soared.
The freight rate of the 300,000-ton supertanker TD3C, which represents the Persian Gulf to the Far East, has gone out of madness, and has soared from 54.58 on the first working day after the start of the Saudi price war on March 9 to 223.58 on March 16. Although it has been adjusted since then, it rushed back to 207 on March 31.
On the day of March 31, TD3C was at 207 points (the basic freight rate for Saudi Ras Tanura to Ningbo was 21.90 US dollars / ton, the freight rate for ton was 2.07 * 21.90 = 45.33 US dollars), and the freight rate for the 300,000-ton supertanker from Meiwan to China was 20 million. US dollars (2 million barrels of capacity, barrel freight at 10 US dollars), WTI May crude oil futures reported 20.1 US dollars / barrel, Brent June crude oil futures at 25.92 US dollars / barrel, here we ignore the conversion of futures and spot prices, Middle East crude oil Brent June crude oil futures prices, US crude oil May WTI crude oil futures prices, 7.3 tons of barrels and Saudi official price discount-3.1 US dollars / barrel to do a rough calculation-
we will find the Middle East return online freight and goods the proportion of the value of:
45.33 / 7.3 / (25.92-3.1) = 27.3%
the proportion of US Gulf shipping and returning the value is staggering:
10 / 21.90 = 45.66%
, whether in the Middle East, West Africa or the United States to return the Gulf, freight and The proportion of the value of goods is normally only 4%. It can be said vividly that the international oil industry has emerged for the first time, and the phenomenon of affording oil charter cannot be afforded.
The chart below reflects the structure of US crude oil export destinations in 2018, and the Asia-Pacific region has one of the four worlds.
For ordinary people, our perception of international oil prices is more of the changes in WTI and Brent in the news, but futures prices are not all the price of crude oil. From the perspective of spot operations, premiums and discounts, freight costs and warehousing and logistics capabilities are the core issues related to profit and loss. In the case of oversupply, prices far from the end consumer market often deviate from the value. On the one hand, the base price is very low, and on the other hand, the freight is posted.
Since the US and Saudi crude oil exports are highly dependent on sea freight, Russian crude oil exports are highly dependent on pipelines. Shipping is often provided by independent third-party shipping companies, while Russian pipelines are more owned by the state. Therefore, in the extremely distorted spot market, Russia has an asymmetric competitive advantage.
In view of the high cost of shutting down oil wells and the interruption of cash flow for oil companies, and many ports and refineries have stopped accepting crude oil from tankers, crude oil producers are willing to dispose of excess crude oil at very low prices. Production has been suspended. It has been reported previously that inland shale oil producers in the United States have offered money to dealers only to take away crude oil.
Due to shrinking demand, OPEC + failed to reach a production cut agreement in March, crude oil supply increased, and global inventories may soon reach the maximum limit. Even though OPEC + began to limit production, the oversupply caused by the global transport blockade is still very large, and it is expected that the crude oil storage capacity may reach its limit by the middle of the year.
At this stage of the price war, the continuous extraction of crude oil will only make most of the world’s crude oil producers lose money. Even if Saudi Arabia has the lowest production cost in the world, Saudi Arabia will have to accept the bitter results of its small profits being repulsed by high freight rates.
However, deep-seated contradictions did not resolve the
global crude oil production of 4.6 billion tons in 2018, 670 million tons in the United States, 560 million tons in Russia, and 520 million tons in Saudi Arabia. The crude oil production of the three countries reached 38% of global crude oil production.
At the end of 2016, since OPEC + officially formed an alliance, Russia and Saudi Arabia have been sacrificing market share to maintain fragile oil prices. US shale oil took the opportunity to attack the city, low-sulfur light US crude oil was very popular in the Asia-Pacific market, and became the core component of the increase in crude oil supply side.
Relying on the shale oil and gas revolution, the United States achieved energy independence, and at the same time the United States began to penetrate Europe, the traditional sphere of influence of Russian energy.
In terms of petroleum, as shown in the chart below, since OPEC + formed an alliance in 2016, US crude oil exports to Europe have risen sharply, and the US crude oil exports to Rotterdam from the Netherlands have a growing influence on Brent pricing.
In terms of natural gas, US shale gas has also aggressively penetrated the European natural gas market in the form of liquefied natural gas, seizing the Russian pipeline gas market share. As shown in the chart below, the US LNG export to Europe has grown linearly in recent years.
By provoking the natural gas dispute between Russia and Ukraine, the United States made Ukraine not rely on Russian natural gas and took the opportunity to attack Russia.
In December 2019, the United States used long-arm jurisdiction to sanction Russia ’s Beixi No. 2 natural gas pipeline route from Germany to Germany.
As shown in the figure below, Beixi No. 2 is of great strategic significance to Russia’s pipeline gas exports to bypass Ukraine.
In February 2020, the United States sanctioned Russian oil on the grounds that Russian oil trading subsidiaries operate Venezuelan crude oil.
Gazprom and Gazprom are state-owned energy companies in Russia, and they have a vital overall role in the Russian economy.
Natural gas accounts for 24% of the world ’s primary energy, behind coal and oil. Some organizations predict that natural gas will surpass coal as the second largest energy source in the next 20 years. By the middle of the 21st century, it will surpass oil as the world’s largest energy source, and there is huge room for growth in the demand for natural gas.
The United States is the world leader in horizontal wells and staged fracturing technology. The gas phase of shale is easier to recover than shale oil. Considering the unique geological structure of oil and gas reservoirs in the United States, shale gas in the United States is more economical than shale oil. US sanctions on Beixi No. 2 have strategic considerations.
Under Trump’s slogan “Make America Great Again”, US energy independence has given Trump arms. The adjustment of the US global energy strategy is overall, and the contradiction between the US and Russia is a structural contradiction that is difficult to resolve.
new crown epidemic has spurred changes in relations among countries.
Russia has the idea of using this price war to test the US shale oil bottom line, and the United States has strongly countered this idea.
The United States that achieves energy independence will not easily give up shale oil. The Fed has continuously injected liquidity and directly purchased corporate bonds. The latest news is that large US bankers are preparing to participate in the operation of oil and gas fields for the first time in a generation to avoid them. With the bankruptcy of energy companies, the loans issued were lost.
Texas is also a Republican iron plate. In the election year, Trump could n’t afford to lose in the oil major Texas. Therefore, Trump actively intervened after the previous cold eyes.
The United States is very strong in this production cut, and has been using military and economic means to check and balance Saudi Arabia, including the withdrawal of military bases from Saudi Arabia and the imposition of energy tariffs on Saudi Arabia.
In the face of a pledge to report to Li, Saudi Arabia and Russia’s sincere and satisfactory production reduction agreement, the Texas Railroad Management Committee will hold a production-limiting meeting on April 14. As the Texas oil industry regulator, whether the agency will promote the first oil production limit in 1973 is worthy of attention.
Under the price war launched by Saudi Arabia, other OPEC members have faced the double killing of the outbreak and the collapse of international oil prices, which is unsustainable. Saudi Arabia, who has been OPEC ’s big brother since 1960, must make changes.
Since the OPEC + video conference on April 9, Saudi Arabia, which has the strongest mobile production capacity, has been actively mediating, and the official price discount of Saudi Arabia has been pushed back and forth, and the official price sticker has been issued on the 5th of each month. Water was first pushed to April 10, and with the twists and turns of the meeting, Saudi Arabia has repeatedly postponed it because it is unwilling to destroy the production cuts that it is difficult to obtain. On the evening of April 12, Saudi Arabia convened OPEC + for its final efforts and achieved success.
In the current situation of spot supply and demand, there is no place to cut oil production without further reduction, and Saudi Arabia can no longer be self-willed. Only the first to take the lead, actively mediate and set an example. This is also in line with Saudi Arabia’s image of the global oil industry stabilizer for many years.
On April 13, Saudi Arabia finally released the official price discount of crude oil. Compared with the previous month, the discount for Arab light crude oil in the Asia-Pacific region was US $ 4.2 / barrel; the premium in Northwest Europe was flat; the discount in the Mediterranean region was US $ 1. /barrel. The difficulty of selling crude oil in the spot market has led Saudi Arabia to maintain its market share in the Asia-Pacific region, especially China, after reaching a production cut agreement.
On the Russian side, in the face of the enormous pressure that the country’s epidemic situation may erupt, making a temporary compromise is also a matter of time for space.
Russia attaches great importance to lifting sanctions against Gazprom and Russian oil, and it does not rule out the United States making concessions at an appropriate time.
In general, the new crown epidemic has spawned changes in relations among countries. In just a few days, it has been able to coordinate multiple countries to reach an unprecedented production reduction agreement. The United States, Russia and Saudi Arabia have all made great efforts.
Compared with the 20 million barrels per day that Trump has previously released on Twitter, this production reduction agreement is more like holding it up and lowering it gently.
The output reduction agreement, which is better than nothing, is expected to have a bottoming effect on the market and prevent the market from crashing. However, the commodity nature of crude oil determines that prices are more determined by demand. In the face of the current extremely collapsed demand in the second quarter, short-term international oil prices are expected to continue to be weak .
The New Coronary Pneumonia epidemic is currently at an inflection point in Europe, and the mortality rate began to decline in the United States last weekend. The darkest moment in Europe and America may have passed, but our experience shows that it will take time to resume production in Europe and the United States The intensity is relatively weak, and we need to be vigilant and repetitive. At the same time, there is another wave of outbreaks in the new coronary pneumonia epidemic in emerging countries. OPEC + ‘s pessimism about market expectations reminds us that the new coronary pneumonia epidemic will continue to impact the market and we must maintain awe.