[SMM] the dust settles! OPEC+ cut production by 10 million barrels per day. This is what the industry sees in the oil market.

SMM4 month 10: last night, OPEC+ emergency meeting was finally held, production reduction agreement was reached again, a month of stalemate in the oil price war finally ushered in a turnaround. After hours of negotiations, the OPEC+ finally reached a consensus on the issue of reducing production. Although Mexico has not accepted the cut agreement for the time being, the trend of global oil production cuts will not change.

OPEC+ said it would cut production in stages, that is, OPEC+ will cut production by 10 million barrels a day from May 1, 2020, the first round of production cuts for a period of two months. OPEC+ also confirmed a reduction of 8 million barrels per day to December from July 2020 and 6 million barrels per day from January 2021 to April 2022.

But the cut in production is far less than expected by 20 million barrels a day. Will the market buy the cut agreement? People in the industry have expressed their views one after another:

Rosneft, a Russian oil company, believes that a 10 million-barrel-a-day cut in OPEC+ production would be enough to rebalance the oil market. Rosneft believes that the decline in global oil demand is likely to bottom out in April and will pick up from May. Overall, the Rosneft expects oil demand to fall by 500-7 million barrels a day in 2020 compared with last year. RenCap added that Rosneft is likely to cut its annual capital expenditure to less than 700 billion roubles from the latest forecast of 850 billion roubles-1 trillion rubles to support the generation of free cash flow.

Roger Read, an energy analyst at Wells Fargo, points out that until social isolation measures come into contact in North America, Europe and parts of Asia, OPEC's production cuts can at best barely keep pace with falling demand.

Ethan Bellamy, an analyst at Baird, believes that the 10 million-barrel-a-day cut is simply not enough to balance the market. The only option for OPEC is to use prices (falling) to force other high-end countries, such as the US, to cut production. Given that Russia currently has more than $500 billion in reserves, it does have the capital to fight a price war to rob U. S. oil producers of customers.

Michel Salden, head of commodities at VON TOBEL Asset Management, believes that so far, the 'agreement' does not look certain, and OPEC + is more likely to be waiting for G20 energy ministers to cut production by 5 million barrels a day on Friday. If the G20 agrees to cut production, it will cut production by 15 million barrels a day, which is the ultimate goal of the OPEC+.

Citic Securities said the rebound in oil prices still needs to wait for fundamentals to improve gradually. Citic Securities published a study that estimates that full OPEC+ production cuts in May-June combined with passive production cuts in Iran and other three countries, down only 896b / d and 9.06 million b / d year-on-year in 2019, are far from enough to hedge against a sharp drop in short-term demand. Oil prices are expected to fluctuate in April, with production cuts from May to June pushing oil prices back to around $40 a barrel. As demand recovers in the second half of the year, the oil distribution hub will be $45-50 a barrel in 2020. The oil price recovery cycle focuses on low-cost, low-valuation, integrated leading companies.

Global oil demand is expected to fall by more than 8 million barrels a day in the second quarter of 2020 from a year earlier, WoodMackenzie said. Mackenzie said demand would fall the most in April as a result of measures to deal with the new crown pneumonia epidemic, which is expected to fall more than 15 million barrels a day from a year earlier. By the second half of 2020, as fundamentals begin to shift to stable demand, the extreme oversupply in the first half of this year will gradually ease. The agency predicts that total global supply will not show growth in 2021, including OPEC (OPEC), non-OPEC and LNG supplies. Mackenzie said demand, while weak, is expected to increase in 2021. The agency said the cut of 10 million barrels a day would play a very big role in supporting oil prices in the second quarter. This will slow inventory growth and avoid oversupply in the second quarter.

Li Yunxu, crude oil analyst at CIC Anxin Futures, said that the weakness of spot and recent contracts against the backdrop of oversupply will continue to suppress oil prices and monthly differences, and that the impact of the epidemic on crude oil demand will not resume in the short term. However, active and passive production cuts on the supply side will support oil prices with already low valuations, and the probability of wide oscillations at the bottom of oil prices is on the high side. In addition, it should also be noted that the number of active oil drilling rigs in the United States has dropped by more than 100 in the past month and is still continuing, and the contribution of new shale oil wells has plummeted and superimposed on the attenuation of old wells, which may reduce the month-on-month production in the second quarter to more than 2 million barrels per day. Against the background of a sharp reduction in the supply side, if we can see an improvement in demand expectations in the near future, the upward elasticity of oil prices may be magnified.

SMM "current combination" training class

Registration contact: Lu Qingping, SMM Iron and Steel Division

Tel: 021-51595781 / 187-1777-4590