Industry News
The global crude oil market is hovering between loose equilibrium and tight equilibrium
Li Yunxu, an energy analyst at Guotou Anxin Futures, told reporters that due to the sufficient market expectations for the continuation of Saudi Arabia's production reduction and Russia's crude oil export reduction of a total of 1.3 million barrels per day, the unexpected agreement reduction in this meeting is less than 1 million barrels per day. Considering the seasonality of Russian oil exports and the upward adjustment of the UAE benchmark reference volume, compared to the fourth quarter, The marginal reduction brought about by this meeting for the first quarter of next year is expected to be only around 500000 barrels per day. In addition, due to the voluntary production reduction cycle of multiple countries being limited to the first quarter of next year, concerns about oversupply after the second quarter of next year are difficult to dispel. Overall, the positive impact of the meeting is limited, but it has strengthened the expectation of global crude oil destocking as of the first quarter of next year.
According to Wang Huijuan, an analyst at Guangfa Futures, on the one hand, at the OPEC+meeting in April this year, its member countries had announced voluntary production cuts of 1.649 million barrels per day. Coupled with Saudi Arabia's decision to reduce production by an additional 1 million barrels per day in June, the overall voluntary production reduction scale of OPEC+had already reached 2.149 million barrels per day before the meeting. Therefore, the voluntary production reduction quota of 2.196 million barrels per day this time has only increased by 47000 barrels per day compared to before, and the marginal change is relatively limited. On the other hand, the voluntary production reduction model cannot form a strong constraint on the production behavior of its member countries, and voluntary production reduction has not been included in the OPEC+production baseline agreement. Therefore, the market also expresses certain doubts about the degree of implementation of production reduction by member countries. It is worth noting that some member countries have indeed violated their previous voluntary production reduction declarations in recent months. If OPEC+member countries violate their commitments again in subsequent actual production, their voluntary production reduction declarations will also be meaningless. Based on doubts about the implementation effect of OPEC+voluntary production reduction, oil prices have also turned down to indicate market attitude.
"In fact, some oil producing countries have nominally reduced production, and the quotas given are actually increasing production." Zheng Mengqi, an analyst at Haizheng Futures Energy and Chemical, said that the OPEC+meeting gave the UAE a crude oil production quota of 2.912 million barrels per day for the first quarter of 2024, which is higher than the quota of 2.875 million barrels per day from July to December this year. In addition, the UAE has idle production capacity of up to 1 million barrels per day, making it the second highest idle production capacity among OPEC member countries, In name, it reduces production by 163000 barrels per day, but in reality, it can increase production by another 37000 barrels per day. It is worth noting that some domestic oil production has long exceeded the quota stipulated in the OPEC+production reduction agreement. In October, Iraq's crude oil production was 4.329 million barrels per day, exceeding the quota of 109000 barrels per day. Previously, Iraq's crude oil production often exceeded the target line. This OPEC+meeting called for Iraq's production to fall below 4 million barrels per day in the first quarter of 2024, and there is a high possibility that the implementation rate of its production reduction agreement will not meet the target.
In terms of demand, according to Li Yunxu, the operating rate of US refineries increased from 87% to 89.8% last week, but both gasoline and diesel have accumulated reserves. The apparent demand for gasoline and refined oil has slightly decreased. Currently, profits of US refineries are gradually stabilizing, and the seasonal recovery rate is accelerating, which is expected to drive the depletion of crude oil inventories. On the domestic side, the operating rate of refineries decreased slightly from 72.55% to 72.38% last week, continuing the trend of stabilizing at a low level. Overall, the current domestic and international refining profits, refinery operating rates, and terminal demand trends are relatively stable and in line with expectations. The demand side mainly focuses on macro level direction.
Looking ahead to the future, Li Yunxu believes that there will be limited demand side disturbances in the near future, and the marginal benefits on the supply side will also be significantly reduced after the OPEC+conference is held. From the perspective of inventory expectations, the current expectation of destocking will provide relative support for the valuation and monthly spread in the near month, and it is expected that there is limited downward space for oil prices.
Wang Huijuan believes that the actual reduction in production at this OPEC+conference was not as expected, only about 50000 barrels per day more than the previous voluntary reduction. Therefore, this voluntary reduction is still a continuation of the previous production reduction policy, and its constraint on marginal supply is limited. As oil prices weaken, the US plan to replenish SPR is on the agenda, which will also weaken the accumulated pressure on commercial crude oil inventories. On the demand side, the recovery of domestic refinery operations is limited, and with weak overseas demand, the price difference of overseas refined oil cracking is under pressure. At the macro level, overseas central banks are currently entering a transitional stage from interest rate hikes to rate cuts, with liquidity pressure slowing down. However, the expectation of recession is expected to suppress actual demand for crude oil, and macro pressure above oil prices still exists. After the OPEC+meeting boots are implemented, it is expected that oil prices will operate weakly under overseas macro pressure.
In Zheng Mengqi's view, the crude oil production of the OPEC production reduction exemption countries Iran, Libya, and Venezuela has also been slowly recovering recently, and the United States has relaxed its sanctions on Iran and Venezuela to varying degrees. Therefore, it is expected that in the first quarter of 2024, the entire OPEC crude oil production will be approximately 27.475 million barrels per day. If OPEC+member countries fully comply with the quota provisions of the production reduction agreement, the supply and demand of the crude oil market will be slightly tight and balanced; If the production exceeds the quota or there is an oversupply. The global crude oil market is hovering between loose equilibrium and tight equilibrium, with limited space above oil prices.
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