The effect of oil supply pattern change, production and price increase

Abstract The Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers such as Russia have agreed to cut production by 1.2 million barrels per day, exceeding market expectations. Although it has decided to cooperate in reducing production, in view of the fact that the implementation rate of production cuts has yet to be supervised, and the capacity of the United States continues to expand, the international oil market...

The Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers such as Russia have agreed to cut production by 1.2 million barrels per day, exceeding market expectations. Although it has decided to cooperate in production cuts, given the pending implementation of production cuts and the continued expansion of US capacity, there is still considerable uncertainty in the outlook for the international oil market, and the market is worried that production cuts will not offset new US output.

After two days of consultations, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers such as Russia agreed to cut production by 1.2 million barrels per day, exceeding market expectations of a previous reduction of 1 million barrels per day. In terms of production quotas, Saudi Arabia-based OPEC members will cut production by 800,000 barrels per day, while Iran, Venezuela and Libya will cut production. Non-OPEC members agreed to cut production by 400,000 barrels per day. Russia, which originally opposed the reduction of production, changed its attitude and expressed willingness to cooperate and agreed to cut production by about 230,000 barrels per day.

The recent two months of oil price plunging and oversupply market trends have made the OPEC meeting a market concern and are generally expected to cut production. However, around the issue of production cuts, this OPEC meeting has been full of twists and turns. During the previous G20 meeting in Argentina, Russian President Vladimir Putin and Saudi Crown Prince Salman announced that they agreed to extend the production reduction agreement to 2019, and the market regards this information as a notice of OPEC's final agreement to reduce production. However, after the closing of OPEC's closed meeting on December 6, it did not announce the decision to the outside world as scheduled. Saudi Oil Minister Falih said that it is uncertain whether Russia can finally join the agreement and is not optimistic about the agreement.

It is understood that the main reason for the delay in the announcement of the production reduction agreement is that the parties have differences in the scope of immunity and production reduction. The Saudi oil minister had strongly recommended that all countries could not waive production cuts, but Iranian Oil Minister Zangane said that Iran will not join any oil production reduction agreement in the face of sanctions. In addition, Libya also hopes to waive production cuts. At the same time, Russia and Saudi Arabia also have differences on how to allocate production quotas. Russia says it will cut crude oil production by up to 150,000 barrels per day. However, OPEC insists that Russia needs to cut production by 250,000 barrels per day to 300,000 barrels per day. In the end, under the mediation of many parties, the stalemate was resolved and a production reduction agreement was reached.

Analysts pointed out that Russia played an important role in the conference, showing Russia's new influence in the international crude oil market and highlighting the importance of Russia's cooperation with Saudi Arabia. Some analysts even believe that OPEC has actually become an organization controlled by Russia and Saudi Arabia. Some small members of OPEC also feel that their status within the organization has become less important. Qatar, one of OPEC’s smallest oil producers, has announced that it will withdraw from OPEC from January next year.

This move triggered concerns about the stability of OPEC. After entering the era of low oil prices, OPEC is facing tremendous pressure for development and transformation. Changes in the pattern of the international energy market have weakened OPEC’s global influence. The decisions made by the three major oil-producing countries of the United States, Russia and Saudi Arabia have had an impact on the international oil market, so that OPEC’s ability to regulate oil prices alone has been declining. Although the exit of Qatar from OPEC has little impact on the crude oil market, the destructive effect of the withdrawal of the first Middle East member countries on the stability of OPEC is obvious. There have been rumors that Iraq may follow suit.

At present, although OPEC and non-OPEC oil-producing countries have decided to cooperate to reduce production, in view of the fact that the implementation rate of production cuts has yet to be supervised, and the capacity of the United States continues to expand, there is still a large uncertainty in the prospects of the international oil market. The market is worried that the production cuts may not offset the new US. output. Since the beginning of 2016, US oil production has increased by 2.5 million barrels per day to a record 11.7 million barrels. Moreover, according to the latest data released by the US Energy Information Administration (EIA), as of the week of November 30, the United States became the net exporter of crude oil and refined oil for the first time in 75 years. Therefore, after the oil price is boosted in the short term, the latter trend still needs to observe the crude oil production of major oil producing countries. (

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