On April 1, the oil policy discussed at the ministerial meeting of the organization of Petroleum Exporting Countries and its allies (OPEC +) was implemented, and the international oil price rose sharply. The settlement price of the main contract in the U.S. WTI crude oil futures market was $61.45/barrel, up $2.29 or 3.9%. Brent crude oil futures market settlement price of the main contract at 64.86 U.S. dollars / barrel, or 2.12 U.S. dollars or 3.4%. WTI rose nearly 4%. OPEC + meeting finally decided to gradually increase production in the next three months. Although it broke the expectation of no production increase, the production increase scale was small, and Saudi Arabia’s 1 million barrels additional production reduction was also a gradual exit. In addition, it is generally expected that the rapid recovery of the US economy and the epidemic situation in Europe will only have a temporary impact, and the oil price will rebound sharply.
OPEC + agreed to gradually increase oil production in the three months starting from May. OPEC + stated that the meeting approved the adjustment of production level in May, June and July 2021. OPEC + will continue to hold monthly OPEC + ministerial meeting to assess the market environment and decide the adjustment of production level in the next few months. Each adjustment will not exceed 500000 B / d.
According to the production quota of each country published on the official website of OPEC, OPEC will increase oil production by 350000 B / D, 350000 B / D and 441000 B / D in May, June and July respectively. Moreover, Saudi Arabia will phase out the 1 million B / D voluntary production reduction since January, reduce by 250000 B / D in May, 350000 B / D in June and 400000 B / D in July.
As far as the results of the OPEC + meeting are concerned, it is beyond the previous expectation to maintain the scale of production reduction, but why did the oil price rise sharply instead?
Specifically, first of all, the OPEC + production control policy is still cautious. First, the policy will be more flexible. OPEC + will evaluate the market every month and make a new decision to adjust the output, so as to more effectively prevent the market supply and demand risks. In addition, Saudi Arabia’s withdrawal of 1 million B / D of additional production reduction is also gradual, which will reduce 250000, 350000 and 400000 B / D respectively from May to July, giving the market a certain buffer time.
The market is still optimistic about the future demand of the oil market. Crude oil inventory may gradually enter the process of decontamination in the second quarter. The demand data of the United States is very stable. The Biden government has previously launched a 1.9 trillion stimulus plan and is currently brewing 2.3 trillion infrastructure stimulus measures. With the continuous promotion of vaccination in the United States and the control of the epidemic situation, the growth of oil demand in the United States may usher in a new era Explosive growth. China’s economy has returned to normal at an earlier time. At present, the main obstacle to economic recovery is Europe. However, the market expects that the European blockade is only temporary. With the acceleration of vaccination, the European economy will also enter the recovery track. Optimistic expectation is the main driver of the rise in oil prices.
Business News crude oil analysts believe that the recent oil prices are still affected by the European epidemic, and there are many obstacles to break through. In the medium and long term, as the European epidemic eases, oil prices still have the power to rise. But in the long run, the main uncertain factor of the oil market is the increase in shale oil production in the United States. At present, it is recorded that American energy companies have increased oil and gas drilling for the third consecutive week. The number of active oil drilling rigs has increased to the largest since January 2020. The oil price is still in the comfortable range of shale oil cost and profit. More and more energy companies have plans to increase expenditure in 2021, while the oil price is still in the stable range This followed cuts in drilling and completion spending over the past two years. Overall, the oil market will still seek to rebalance supply and demand in the future under the game of OPEC + production control and U.S. production increase. Oil prices may continue to rise, but we should be cautious.