Saudi Arabia proposes to extend existing oil production cuts until the end of the year

Recently, calls for the extension of OPEC and its allies’existing oil production cuts to the end of this year have intensified. The Joint Ministerial Production Reduction Supervisory Committee of OPEC and allies, which oversees the performance of oil-producing countries, is scheduled to meet in late March in Azerbaijani. Meanwhile, the major oil producers, led by OPEC, will meet in Vienna from April 17 to 18 to review the current production reduction plan. At present, the market generally believes that the joint production reduction measures of OPEC and non-OPEC countries will continue until the end of 2019, but because of the deterioration of the global economic environment will lead to the reduction of oil demand and other factors, oil prices will not rise significantly in the future.

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Consider extending the cut-off agreement

Saudi Arabia proposes to extend the existing oil production reduction agreement until the end of 2019, according to a source close to OPEC quoted by the Russian Tass Agency and the International Telegraph Agency. The news pushed up international oil prices on the 12th. By the end of the day, light crude oil futures for April delivery on the New York Mercantile Exchange had risen 0.14% to close at $56.87 a barrel, while London Brent crude oil futures for May delivery had risen 0.14% to close at $66.67 a barrel.

The Tass news agency reported that Saudi Arabia preferred to maintain existing provisions or “a more relaxed quota for production cuts”. The International Telegraph Agency revealed that the major oil producers, led by OPEC, will meet in Vienna from April 17 to 18 to consider whether to extend the cut-off agreement until the second half of this year, and that countries will meet again at the end of June to discuss production issues.

According to the confirmation of the Ministry of Energy of Azerbaijani, Russian Energy Minister Nowaka confirmed that he would attend the 13th Joint Ministerial Meeting of OPEC and Allied Countries in Baku, capital of Azerbaijani, from 17 to 18 March, which would discuss the current level of production reduction.

Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, Khalid Falkh, said on November 11 that OPEC-led production cuts are unlikely to end by June. Another Saudi official also said the country planned to keep crude oil production well below 10 million barrels a day in April and cut exports to less than 7 million barrels a day to ease the problem of excess oil supply. Karsten Fritsch, an analyst at the German Commercial Bank, said this showed Saudi Arabia’s determination to maintain the balance of the oil market by keeping oil supplies tight.

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On December 7, last year, OPEC reached an agreement with non-OPEC oil-producing countries to reduce the production of crude oil by an average of 1.2 million barrels per day from January 1, 2019, on the basis of last October’s production, with a preliminary set period of six months. Saudi Arabia’s target output is about 10.3 million barrels per day.

But according to foreign media reports, Saudi oil production in January was 10.24 million barrels per day, fell to 10.13 million barrels per day in February, and will further decline to 9.8 million barrels per day in March.

Previously published OPEC February report showed that from December last year to January this year, OPEC has achieved the largest reduction in output for two consecutive months, with Saudi Arabia leading the way. Falh promised to increase production cuts, suggesting that Saudi Arabia’s output would be nearly 500,000 barrels a day lower than the quota by March this year. According to a survey released last week by S&P Global Platz, OPEC output fell to its lowest level in nearly four years in February.

Falkh has been advocating an extension of the cut-off agreement from the beginning of this year to the end of the year. Farleh said on February 27 that before reaching a reduction agreement at the end of last year, “OPEC and its allies” experienced a significant increase in production, which directly led to the supply of crude oil did not decline, but the stock of crude oil increased sharply. “We are committed to balancing the market, and according to the market outlook, we must continue to control production in the second half of the year,” Fallich said. But at the same time, we will continue to be flexible and make decisions based on assessing market conditions.

Insufficient momentum for continued oil price rise

Since this year, the two major international oil prices have changed their declining trend in the fourth quarter of last year and both have risen by more than 20%. However, in a recent survey conducted by Reuters, respondents expected the average price of Brent crude oil futures in 2019 to be $66.44 per barrel, lower than the expected $67.32 a month ago. The U.S. Energy Information Agency (EIA), a statistical agency affiliated to the U.S. Department of Energy, released a short-term energy outlook report on December 12, predicting that the global average price of Brent crude oil in 2019 will be $63 per barrel, and will fall to $62 per barrel in 2020, much lower than the $71 per barrel in 2018. Some analysts believe that such expectations mean that oil prices will not rise much this year.

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Market participants believe that the current level of international oil prices reflects the relationship between supply and demand in the market. Before the emergence of new stimulus factors, the possibility of a sharp rise in crude oil prices is minimal. Richard Gori, head of Asia operations at JBC Energy in Austria, believes that current oil prices are in a “pleasant” price range for both oil producers and consumers.

As far as the relationship between supply and demand is concerned, on the one hand, the supply of crude oil decreases and increases mutually; on the other hand, the growth rate of crude oil demand may slow down.

Over the past two months, OPEC’s output has declined sharply and the action of oil-producing countries to reduce production has been further strengthened, which is an important factor in maintaining stable oil prices. However, crude oil production in the United States and Canada is still rising.

On the demand side, the demand for international crude oil has decreased due to the expansion of new energy applications and other factors. Relevant agency data show that U.S. manufacturing data is weak, and crude oil demand in the U.S. market is now weak at the end of last year. In addition, international agencies’expectations for economic growth this year have been lowered, and global economic growth in 2019 will be slower than in 2018, which will reduce demand expectations for crude oil. OPEC forecasts that global economic growth will not exceed expectations this year and that global demand will fall to 30.59 million barrels per day in 2019. Gene McGillian, an analyst at Traditional Energy, said concerns about slowing economic growth and reduced oil demand had put pressure on international oil prices, which could offset the boost from OPEC’s crude oil supply cuts.

Overall pattern or change of international oil and gas industry

Later this year, the United States will surpass Saudi Arabia in exports of petroleum products such as oil, gas condensate and gasoline, CNN reported. Reported that, driven by the boom of shale industry, the United States will become the world’s major exporter of oil and gas condensate. Driven by the shale industry, U.S. oil production has more than doubled in the past 10 years, reaching its highest level ever.

EIA estimates that US crude oil production will average 12.3 million barrels per day throughout 2019 and increase to 13 million barrels by 2020. Meanwhile, EIA expects net imports of crude oil from the United States to fall to 1 million barrels per day in 2019 and further to fall to 100,000 barrels per day in 2020. EIA believes that in the fourth quarter of 2020, the United States is expected to become a net exporter of crude oil and petroleum products.

On November 11, Fatih Birol, Director of the International Energy Agency (IEA), said at Cambridge Energy Week: “The second wave of the shale oil revolution in the United States is coming, which will affect the overall pattern of the international oil and gas industry.” Birol pointed out that since 2018, the United States has led the growth of global oil supply. By the end of 2024, U.S. oil exports are expected to increase to 9 million barrels a day, exceeding Russia’s, approaching Saudi Arabia’s level, and diversifying the global oil supply side.

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