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The results of crude oil diplomacy have returned to zero. What is the impact of OPEC+’s small production cuts?

Yesterday evening, representatives of OPEC+ stated that the organization would reduce production by 100,000 barrels per day from October to bring supply back to August levels. The …

Yesterday evening, representatives of OPEC+ stated that the organization would reduce production by 100,000 barrels per day from October to bring supply back to August levels. The next meeting will be held on October 5, according to the statement. If necessary, the Chairman will consider convening OPEC and non-OPEC ministerial meetings at any time to address market developments.

After the news was released, international oil prices continued to rise, with Brent crude oil exceeding $96 per barrel, with an intraday increase of over 3.7%.

Saudi Arabia said that OPEC+ members cut oil supply for the first time in more than a year, indicating that the organization takes global crude oil market management seriously and is willing to take preemptive action.

Saudi Energy Minister Abdul Aziz said: “This decision expresses our intention that we will use all tools. This move also shows that we will remain focused and efficient in supporting the stability and efficient functioning of the market.” Be preemptive and proactive.”

Iran extended an “olive branch”. Iranian Foreign Ministry spokesperson Kanani said on the 5th that Iran is rich in oil and natural gas resources, and European countries are currently facing problems in energy supply. If negotiations to resume compliance with the Comprehensive Plan of Action on the Iranian Nuclear Issue are successful and unilateral sanctions against Iran are lifted, Iran “can meet a large part of Europe’s needs.” He said that the complete lifting of sanctions against Iran is Iran’s main goal in the current negotiations. If the United States has the political will and takes constructive actions, it will be possible to reach an agreement on resuming implementation of the Iran nuclear agreement.

The results of crude oil diplomacy have returned to zero, and OPEC “slaps Biden in the face” again!

Some market participants said that OPEC+’s latest decision to cut production will overturn the previously announced September production increase plan, nullifying the results of Biden’s Middle East crude oil diplomacy, and will also make OPEC+ (especially Saudi Arabia) face greater political pressure from the United States.

As early as early August, OPEC+ only agreed to increase production by 100,000 barrels per day in September, which was not only smaller than the 600,000 barrels per day increase agreed in July and August, but also smaller than the generally expected 300,000-400,000 barrels per day. And it also set the smallest increase in production in the history of the alliance.

For Biden, such an increase in production can be described as “not very harmful but extremely insulting.”

The U.S. media immediately quipped: “We are worried that Biden’s trip to the Saudi city of Jeddah on Air Force One may consume more fuel than OPEC+ has agreed to increase oil production this time.”

Some media even said that this “symbolic increase in production” was clearly a “slap in the face of Biden in public.”

What is the impact of OPEC+’s small production cut?

Regarding OPEC+’s latest decision to cut production, CITIC Futures analyst Yang Jiaming said that Monday’s oil price trend more or less reflected OPEC’s decision. Looking forward to the market outlook, the probability of OPEC+ maintaining the current production plan is high. The return of the Iran nuclear agreement, a prerequisite for further production cuts, has not yet been seen. Moreover, OPEC itself believes that demand is strong and its enthusiasm for production reduction is not high. In addition, Russia’s recent natural gas exports have been blocked. Through The possibility of higher revenue from crude oil exports will dampen its incentive to support continued production cuts.

Yesterday, international oil prices rose sharply, and Brent oil rose nearly 4% during the US stock market. As of this morning’s close, Brent crude oil futures for November closed up 2.92% at $95.74 per barrel. There was no closing price for U.S. oil due to Labor Day in the U.S. on Monday. When Brent oil closed, U.S. oil’s intraday gains also narrowed to between 2% and 3%.

Looking forward to the market outlook, Yang Jiaming said that raising interest rates to suppress demand applies to all commodities. When the supply side is unable to provide strong support, a fall in crude oil prices will be an event with higher certainty. The last increase requires an unexpected reduction in the supply side, such as OPEC+’s sharp production reduction, or a further escalation of the situation between Russia and Ukraine. Otherwise, oil prices will still be on the trend of falling back from high levels, and macro fundamentals will be double suppressed.

Li Jie, a senior researcher in the energy and chemical industry of CCB Futures, believes that the biggest negative factor in the crude oil market is still the suppression of consumption due to the continued interest rate hikes by the Federal Reserve. But on the other hand, Europe still faces high natural gas prices due to Russia’s continued supply cuts. If Russian supply continues to decrease in the later period or the temperature in the fourth quarter is lower than expected, it may still support oil and electricity demand, or even trigger a new round of energy crisis, and drive the oil price center to rise again.

In addition, when it comes to the G7 price limit for Russian oil, Yang Jiaming believes that the G7’s actions are largely symbolic because Russia has proven its ability to circumvent sanctions and set a record export volume in August. quantity. Such an export price limit is more like a formal notice approving EU countries to purchase Russian crude oil. If the price limit is reached, the purchase can be unlimited. The question is whether Russia agrees. Russia currently states that it will not supply to countries that implement price limits. crude. The price limit has a limited impact on Russia’s crude oil shipments, and the effect of sanctions may continue to weaken in the future.

In terms of fundamentals, according to Li Jie, on the supply side, the United States has a tough attitude towards Iran, and an agreement has not yet been reached. OPEC’s own production capacity is tight. Not only does it have no intention to increase production, Saudi Arabia also stated that if Iranian oil returns to the market, OPEC+ may further reduce production. Supply-side uncertainty is basicallyRemove. The market’s trading focus has returned to the demand side, focusing on the extent of subsequent interest rate hikes by the Federal Reserve.

“Russia is firmly opposed to price limits and has stated that it will not trade with countries that accept price limits, and may further support oil prices through production cuts. The actual effect is expected to be limited. Under the current market environment, if oil prices fall further, OPEC+ will begin to reduce production. While inflationary pressure has limited the space above oil prices, oil prices are expected to continue to oscillate in the short term,” Li Jie said.

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