Wednesday , January 27 2021

Oil is lowered for 10 days. And now OPEC? – Trading

Al-Falih, a powerful minister of Saudi Arabia, needs support from Russia to reduce production

Al-Falih, a powerful minister of Saudi Arabia, needs support from Russia to reduce production

Heinz-Peter Bader

Donald Trump complained that the Organization of Petroleum Exporting Countries (OPEC) should take steps to invest more oil on the market and thus halt the rise in raw material prices.

Pressure has been exerting over the last few months and got a momentum a few weeks ago when oil prices in London traded above $ 80 and in New York for four years. Since Venezuelan exports fell sharply due to the country's crisis and close to the imposition of sanctions on Iran, card members used the increase in production, which is now at its highest level in two years.

However, the president of the United States "rejected" OPEC because he allowed a number of countries (like Japan, China, Turkey and India) to continue to buy oil from Iran. The US still persist in the good road and this year will reach a new record.

It was a number of factors that led the oil, in just over a month, from the four to the lowest of April. A drop of 20% over five weeks in red which left the oil on the bear market.

OPEC, which has been cutting production down since 2017 in order to end the overshoot of the market that he saw a few years ago, saw his efforts disappear over a short period of time.

The sanctions on Iran, which came into force last week, were supposed to "represent a paradigm shift in the market". The countries they produce have been produced in full capacity to mitigate the impact of sanctions, but Trump has released and granted exceptions, "he said. Michael Loewen from Scotiabank told Bloomberg.

For the president of the United States, the strategy proved to be correct, since it implemented early-announced sanctions on Iran and even reduced oil prices. Just at the time of the provisional elections in a country where gas prices are very sensitive.

Historical cycle of autumn

The WTI in New York falls for ten straight sessions, which has never happened in the history of the oil market. It trades below $ 60 per barrel and already accumulates losses in 2018. Brent in London (dropped in nine of the last ten sessions) traded below $ 70, and yesterday entered the bear market.

In this fragile scenario, OPEC leaders will meet this Sunday in Abu Dhabi. The market is looking into the capital of the UAE to see if OPEC will have a "rabbit in a hat," but the news that the 180-degree turnaround in the card strategy on the table did not stop citations.

After six consecutive production increases (peak in 2016), card members now announce a decline in production? Possibility was published by international agencies on Wednesday, and quotations (despite the upward reaction) continued to fall, as investors do not believe that OPEC will be able to reverse the trend of over-supply in the market.

Even in the face of demand, the situation is now worse because we see a slowdown in the global economy, especially in China, one of the major oil consumers in the world and faced a trade war with the United States.

As early as October, OPEC expects lower oil demand, cutting its world demand forecast for 900,000 barrels a day due to weaker economic growth and increased production of its competitors, particularly North American oil companies.

If it announces this Sunday that it plans to make production, OPEC will make another year's inversion of production quota strategies. Just four months ago, the cartel decided to increase production by a million barrels a day since the beginning of July.

Bloomberg points out that, in the case of Saudi Arabia, the OPEC's largest member and the world's largest oil exporter, the third time in a few years to cut production shortly after the announced increase.

OPEC's production increase in June ended with a cut-off agreement in place since January 2017 and brought together other major non-cartel producers, such as Russia.

Until then, the OPEC-Russia group in 2017 adopted an aggressive decline in production (1.8 million barrels a day) to react to falling prices and shrinking over-market supply. Earlier, they refused to reduce production because lower prices lowered the attractiveness of American research projects (which is only possible with higher oil prices).

It remains to be seen what OPEC will decide and what impact the strategy will adopt on raw material prices.

Final decision only next month in Vienna

The meeting held this weekend in Abu Dhabi is the OPEC's Ministerial Committee, which contains only six of the 25 countries that are part of the cartel. All announced decisions will only be provisional and will always be ratified at a December meeting in Vienna.

However, OPEC often does not have to make decisions on oil price movements, and Saudi Arabian energy ministry statements may be enough to see which production quotas will be adopted by OPEC next January,

Al-Falih has already talked with his Russian counterpart to prepare for this weekend meeting, and according to Bloomberg, Alexander Novak has not shown any openness to reducing oil production. That was when the United States took over the country to become the second largest oil producer in the world.

Of the other members of OPEC there are also those who claim that Saudi Arabia and Russia should take the initiative to reduce production to reduce prices. "Saudi Arabia and Russia have increased their production, and their prices fell by $ 15 a barrel, and they are unbalanced in the market," and now have no choice. They have to cut production by one million barrels a day, said Bloomberg Hossein Kazempour Ardebili, representing Iran at OPEC.

Ed Morse, an analyst at Citigroup, says OPEC will "have to cut production next year because" the world economy slows down and China's trade tensions have a significant impact on demand. "

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