Oil may enter a state of oversupply. Will OPEC increase production excessively in the future?

According to Iranian media reports on the 12th, Iran is evaluating the “final text” proposed by the European Union to resume implementation of the comprehensive agreeme…

According to Iranian media reports on the 12th, Iran is evaluating the “final text” proposed by the European Union to resume implementation of the comprehensive agreement on the Iranian nuclear issue. Iran “can accept” this text as long as it ensures that key demands are met. An Iranian diplomat familiar with the negotiation process to resume implementation of the Iran nuclear agreement told a reporter from the Islamic Republic News Agency that Iran is evaluating the “final text” submitted by the EU. “If (the EU’s) proposal provides Iran with guarantees on issues such as security guarantees, sanctions and agreement guarantees, Iran can accept it.”

Josep Borrell, the EU’s high representative for foreign affairs and security policy, said on the 8th that the EU has submitted a “final text” to the parties involved in the negotiations to resume compliance with the Iran nuclear agreement and expects all parties to make a political decision on this text.

After nearly five months, negotiations to resume compliance with the Iran nuclear deal resumed in Vienna, the capital of Austria, on the 4th. Negotiators from Iran and the United States held indirect talks. After four days of negotiations, the EU submitted the above-mentioned “final text”.

OPEC: The global oil market will enter a state of oversupply in the third quarter

In the middle of this week, OPEC stated in its latest monthly report that there are significant downside risks to the global economy and lowered its global economic growth forecast. The global economic growth rate is expected to be 3.1% this year (the previous forecast was 3.5%). The global economic growth rate in 2023 is expected to be 3.1%. Growth rate was 3.1% (previous forecast was 3.2%).

OPEC also believes that oil supply and demand are close to balance in the second quarter, and expects the global oil market to enter a state of oversupply in the third quarter. The refined products market may see seasonal support for transportation fuels in the second half of the year, and fuel sales may benefit from a slowdown in product prices. .

In this regard, CITIC Futures analyst Yang Jiaming told a reporter from Futures Daily that the conclusion of excess in the oil market is relatively objective, as demand continues to fall and the trend of continued increase in supply is difficult to change.

“The current fundamentals of the oil market are quite different. OPEC’s monthly crude oil demand growth rate has been lowered and supply has increased. The view of entering into surplus this quarter is relatively objective. Judging from the OECD inventory, there is a trend of beginning to accumulate, confirming that supply has begun to exceed demand. However, the IEA raised its demand expectations and emphasized that the replacement demand for oil and gas brought about by high natural gas levels has increased oil price expectations. It also gave an astonishing figure of 523% of OPEC’s production reduction implementation rate and a judgment of a decline in Russian crude oil exports. These figures are all important to our early view. The shipping schedule data received is the opposite, because the shipping schedule data shows that the implementation rate of OPEC production increases and cuts has declined, and Russian crude oil export sanctions are lower than expected. This is equivalent to this report exceeding the market’s negative expectations, and the negative has turned into positive, and oil prices have risen.” Yang Jiaming further analysis.

Sun Zhenyu, research manager of Jinqiao Chemical, also said that crude oil will continue to accumulate in the third quarter: “On the supply side, we can have certain expectations for a total increase in production in August. It is basically a consensus that Russia’s production decline is less than expected. With the recent conflict between Russia and Ukraine There are beginning to be expectations of moderation, and the probability of another major supply reduction in the later period should be relatively low. In addition, active drilling in the United States has returned to above 600. Although the growth rate is obviously slow and may even stagnate, the slow growth in production should be It is unlikely to change. On the demand side, the United States has experienced negative growth for two consecutive quarters; China’s recent manufacturing, social financing, loan and other data are average; Europe’s economic prospects are almost among the worst in the world, and overall global demand expectations will remain pessimistic. Normal. Therefore, from a qualitative perspective, there is no problem with increasing supply and decreasing demand.”

Will OPEC increase production excessively in the future?

After the release of OPEC’s monthly report, some media analysts pointed out that the latest monthly report showed that OPEC believed that there was little need to increase production excessively. Financial blog Zerohedge even believed that OPEC’s conclusion that the oil market was turning to oversupply was paving the way for further production cuts in the future.

Will OPEC increase production excessively? Sun Zhenyu said that refusing to increase production excessively is in line with OPEC’s reality: First, the fundamentals have been deteriorating for some time, and the market continues to expect that supply will be very tight. This may also be the reason why OPEC reached 9 Reasons for increasing production by 100,000 barrels per day in March; second, the problem of remaining production capacity. When global crude oil supply and demand are relatively balanced, or even slightly surplus, the small amount of remaining production capacity continues to be consumed to accelerate the accumulation of storage rather than for consumption. , for OPEC, it is irrational; thirdly, there is the issue of profits. The current oil price has dropped by about US$30/barrel from its high point, and the cracking gap has dropped even further. The continued increase in production will push the oil price back to US$60-70/barrel in one fell swoop. barrels, which would do more harm than good for the current state of the oil-producing countries.

Yang Jiaming believes that OPEC has previously called preparations for the winter energy crisis and therefore has not responded to increase production, which means that there is still a lot of room for future production increases. The room for Saudi Arabia and the United Arab Emirates to increase production should be 1 to 2 million barrels per day. However, Saudi Arabia raised its official oil selling price discount in early August, taking into account the sanctions imposed on Russia by Europe, the United States, and Japan, and the market demand for crude oil from Saudi Arabia and other Middle Eastern countries increased. This shows that Saudi Arabia and other countries are not worried about demand, so there is a high probability that future output will continue to grow and be released into the market together with Russian output. The supply pressure is self-evident.

Sun Zhenyu believes that for future output adjustment policies, under the current baseline situation, OPEC can�The output will be kept fluctuating within a smaller range, and the upper and lower limits will be clearer. Regarding the production cap, there is no doubt that the first one to bear the brunt is the financial balance issue of oil-producing countries, followed by the issue of remaining production capacity. Regarding the lower limit of production, on the one hand, Saudi Arabia and other Gulf countries are under political pressure from the United States. On the other hand, inflation also has an impact on the Gulf countries.

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Author: clsrich