SMM: at 00: 00 this morning, (JMMC), a member of the OPEC + Joint Ministerial Supervisory Committee, held a video conference. An OPEC representative said that no agreement was reached at the meeting on extending the production cuts; most participants, including Russia, supported extending the current production cuts to the first quarter of 2021, while the United Arab Emirates and Kazakhstan were opposed. The UAE questioned compensatory production cuts, pointing out that several OPEC + members had failed to fully comply with the agreement. It is reported that the OPEC ministerial meeting will be held at 21:00 today.
Although four different policy options were discussed at the last JMMC meeting, there were no proposals that could be formally submitted to the OPEC Conference for deliberation. JMMC has not yet formally agreed to any proposal when the OPEC Congress is about to be held. Although the idea of "extending the current production reduction for three months" has won the support of most OPEC + delegates, the negotiations on individual countries' production quotas are expected to complicate the issue. Last week, Iraq said it had reached the limit of tolerance for OPEC's one-size-fits-all production reduction schedule, and Nigeria asked OPEC to consider the challenges of its production cuts. Iraq and Nigeria are both oil-producing countries with the lowest implementation rates of production reductions.
Last weekend, there was once again good news about the vaccine in the market. Vaccination efforts have been accelerated in the United States and the United Kingdom, and the Centers for Disease Control and Prevention in the United States will issue vaccination recommendations tomorrow, and the head of the British National Health Service also said that hospitals will receive the first batch of vaccines produced by Pfizer and BioNTech as early as December 7.
The market is focused on tonight's OPEC ministerial meeting, can we pass a resolution to extend the production cuts in the short term, and where will the oil price go in December?
The prospect of extending the production reduction is bumpy. How will the oil price go in December?
With regard to the good news about the vaccine, Chen Tong, a German futures analyst, told Futures Daily that at present, gasoline demand in major economies has returned to 70% of that before novel coronavirus's epidemic, and diesel demand has also rebounded significantly, while demand for jet fuel has been difficult to return. The emergence of vaccines will help lift restrictions on international travel and increase demand for jet fuel. However, after the introduction of the vaccine to the market, the restrictions on travel and public gathering in various countries may also be relaxed in stages and gradually, and the launch of the vaccine may not immediately boost the demand for crude oil, a process that may take six months or more.
Yang an, an analyst at Haitong Futures, said that the successful development of the vaccine is the most fundamental driving force for the upward shift in the focus of oil price valuation.After the impact of previous good news on vaccines, the market is expected to fully digest such news. the next news is gradually weakening the stimulus to oil prices. Next, the progress of vaccination and the effect after vaccination are urgently concerned by the market, and the final result is very critical to the oil price, which needs to be paid close attention to. At present, the progress of vaccination is relatively ideal.
For OPEC, it is a basic expectation for the market to extend the existing OPEC+ production reduction for three months, especially when the oil price is less than 40 US dollars per barrel, the OPEC parties have expressed a very positive position, and some of them have even proposed to extend the existing production reduction scale for six months, so if this news is finally confirmed, it will have a positive effect on the market. Oil prices rebounded sharply from low levels in November, and oil prices are now relatively high. Different views have been expressed within the production reduction alliance, including the United Arab Emirates and Iraq, which may form some resistance to the extension of OPEC+ production cuts. In addition, even if the JMMC meeting reached a "three-month extension of the current production reduction" proposal, it is only a recommendation, which ultimately depends on the final decision of the ministerial meeting. The JMMC meeting in March also offered suggestions to cut production, but in the end the disagreement between Saudi Arabia and Russia still led to the collapse of oil prices, so the market will still focus on the final decision. " Yang an said.
Chen Tong believes that there are still differences among OPEC+ member states on the proposal to extend the production cut by three months. Iraqi officials said the political and economic situation of member countries should be taken into account before asking member countries to slow down oil production activities, while officials from the United Arab Emirates said the country was considering leaving the OPEC, on the grounds that it was facing difficulties in implementing strict production cuts. However, with the support of Saudi Arabia and Russia, the OPEC Congress is likely to pass a resolution to extend the production reduction plan, which is expected to lead to a supply shortage of 1 million barrels per day in the global crude oil market in the first quarter of 2021.
Li Yanjie, general manager of CITIC Construction Investment Futures Energy Co., Ltd., believes that today's OPEC+ meeting has been pushed to the forefront of the waves, and the decision at the JMMC meeting held on the eve of it can be regarded as the "embryonic form" decided by the OPEC+ conference. The last JMMC meeting did not formally submit a proposal to the OPEC conference, which shows that the current production reduction is in a difficult stage: the current oil price basically covers the external balance line of Saudi Arabia, the United Arab Emirates, Kuwait and other countries. But there is still a long way to go before the governments of the three countries avoid fiscal deficits of $10, 000 and $20 a barrel. Therefore, it is not difficult to understand that under the pressure of poor revenue and limited economic development, countries that rely on oil and gas exports (including Nigeria and Iraq) naturally have the idea of escaping production restrictions. Therefore, in addition to major oil producers such as Saudi Arabia and Russia, it is very understandable that members are dissatisfied with the production reduction agreement and other internal frictions. At present, the market generally expects that the OPEC+ conference will delay the increase of production by at least 2murs for more than three months. It needs to be reminded that if the OPEC+ meeting at the end of the month fails to reach an agreement to postpone the current production reduction for six months, it will become a major negative risk in the oil market in the near future.
Looking ahead, Yang an said that oil prices will have a process of adjustment in December, and if the results of the OPEC+ meeting exceed expectations, oil prices may continue to be strong. In addition, whether the effect of the vaccine can satisfy the market is also a key factor. If neither of the above two positive expectations can be realized smoothly, then oil prices may fall more sharply again.
The oil market is expected to remain dominated by bulls in the short term, but prices may rise at a slower pace in December than in November. The assassination of an Iranian nuclear scientist over the weekend reheated the recent geopolitical situation, with the OPEC+ still inclined to extend the existing production reduction agreement for three months to bring supply-side confidence after the rise in oil prices. With the novel coronavirus vaccine nearing launch, expectations remain an important driver of market sentiment, with signs of a peaceful transfer of presidential power after the US election unleashing market risk appetite and helping crude oil prices rise. However, the negative risks and factors have not completely disappeared: there is still a risk that no agreement can be reached within the OPEC+ to postpone the increase in production; the number of confirmed cases and deaths in the United States are more likely to surge after Thanksgiving, but it will take time to wait for the vaccine to be put on the market and popularize. The two-week increase in initial jobless claims in the United States indicates that the recovery of the job market has been hampered. The $3 trillion aid package will largely expire after Christmas, while the next round of economic stimulus bill may not be introduced until late January. As a result, the impact of the epidemic, employment and stimulus bills puts pressure on oil prices, and the OPEC+ poses a negative risk to the final decision on the production reduction agreement. In the future, WTI will run with reference to the range of US $43 per barrel, and it is recommended that the risk be assessed again after the OPEC+ conference. " Li Yanjie said.
Chen Tong believes that major economies will soon be vaccinated against novel coronavirus on a large scale, and in the medium term, the recovery process of global crude oil demand is expected to accelerate, OPEC+ plans to postpone production production, and bottom-up policies and controls are expected to boost oil prices. Previously, the increase in production in Libya brought pressure on the market, but the spot market discount and the monthly difference of benchmark oil were strong, and Asia-Pacific countries took the initiative to replenish inventories. Even if OPEC+ began to increase production in the first quarter of next year, crude oil inventories would not necessarily accumulate, and the oil price center of gravity was expected to move further upward.
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