The group of OPEC + ministers held its monthly conference on Monday and Tuesday to determine the production level of the alliance countries during the month of February.
The proposals presented to the conference went in two main directions: the first direction saw the need to reduce production by 500,000 barrels per day, while the second approach calls for an increase in production by 500,000 barrels per day.
We reiterate that these proposals come on the basis of the agreement reached by the ministers of the OPEC + alliance last April. The agreement stipulated at the time to reduce the production level of the group’s countries by 9.7 million barrels per day during the three months from May to July, and then it was extended for an additional month until the end of August. Then production will be increased by 2 million barrels, meaning the total reduction is 7.7 million barrels per day until the end of December, which has already been implemented. Finally, the production increased by 1.9 million barrels per day, as the amount of production reduction becomes 5.8 million barrels per day from the beginning of January 2021 until the end of March 2022, which was agreed to be modified, so that production is increased by only 500 thousand barrels per day, meaning the amount of reduction becomes Total 7.2 million barrels per day, not 7.7 million barrels per day, during the month of January, with an increase of 500 thousand barrels per day during February and March.
And also with the amendment of the date of the meetings of the Ministerial Conference of the coalition, to become monthly instead of twice a year, in order to provide greater flexibility in decision-making. Hence, the January meeting came to present before it the propositions previously mentioned at the beginning of the article.
A call to cut production
It seems that the Kingdom of Saudi Arabia was among the biggest advocates of reducing the production ceiling of the coalition, in order to monitor the level of demand in light of the mutation of the Corona virus and the closures that have already been imposed in a number of countries and the possibility of expanding these closures in a number of other countries, as a result of the rapid spread of infection, which leads to Weak demand for oil, in addition to an increase in the level of stocks in consuming countries, factors that may weaken oil prices significantly.
The Saudi position was clearer and more clear than the statements of Saudi Energy Minister Prince Abdulaziz bin Salman at the beginning of the conference, saying, “Do not risk what we have achieved in order to achieve an immediate and unrealistic benefit,” warning of the new version of the Corona virus and the implications of its outbreak on the world economies, saying: “The new surge of the virus. Its consequences cannot be predicted, in many parts of the world, where infection rates have increased alarmingly .. A new wave of closures and restrictions is being put in place, which will inevitably affect the rate of economic recovery in those countries. The Saudi minister urged the coalition ministers to “be careful” and not to accept the progress made by the group over the past year, even in this generally optimistic environment, the level of uncertainty in the world remains high, adding, “The global demand for oil is still much lower than it was before.” At the start of the year, the demand for transportation fuels, especially jet fuel, is particularly fragile. ”
Another call to raise production
On the other hand, there was the Russian position, supported by the position of Kazakhstan, as they called for an increase in production by 500 thousand barrels per day, and Russian Deputy Prime Minister Alexander Novak believes that any reduction in production at prices around $ 50 a barrel means that the shortage or the gap in the market will be filled. By other producers, especially US shale oil producers. The Russian position is based on optimism about demand with the discovery of vaccines for the Coronavirus and with the prevailing expectations of many international organizations for a recovery of economic activity in the countries of the world during the current year. As it is expected that the growth rates in some major oil-consuming countries such as China and India (the second and third largest consumer) will reach about 8%, and the growth rate in the euro area will reach about 3.6%, and the United States is expected to record a growth rate of 3.5%, Meanwhile, the growth rate in the developing world is expected to be about 6%.
Moreover, developments in the short term, especially during the past month, indicate a significant recovery in economic activity, especially in industrial activity.
The US manufacturing PMI closed in December at a 6-year high, as IHS Markit announced that its manufacturing PMI rose to 57.1 in December from 56.7 in November. The index also improved from the preliminary reading in mid-November. December is at 56.5, bearing in mind that every reading above 50 indicates an expansion in activity.
The eurozone manufacturing sector grew at the fastest pace in more than two and a half years in December, as the latest readings of monthly opinion polls by IHS Markit showed that Germany led growth with activity expanding at the fastest pace in nearly three years. Almost all other countries recorded an improvement. The euro-zone index came in at 55.2, up from 53.8.
Some of the improvement in factories in December, especially in Ireland and the Netherlands, was due to a temporary rise in demand from customers in the United Kingdom who wanted to fill their warehouses before the Brexit date of the end of the year.
In light of these two opposing positions between reducing the level of production or raising it by half a million barrels per day, there were difficulties in reaching a collective agreement, which necessitated the postponement of the conference for a period of one day from January 4 to 5, to allow for further consultations.
Conflict resolution and the role of the balancing product
The solution to this conflict was largely unique in its situation, as Russia was allowed to increase its production by 65 thousand barrels per day, and Kazakhstan was also allowed to increase 10 thousand barrels per day, while the level of production of the rest of the countries was fixed, except for Saudi Arabia, which made a great sacrifice in fact by reducing its production ceiling. By one million barrels per day throughout February and March, bringing its production level to 8.125 million barrels per day. Whereas the Russian Deputy Prime Minister described the reduction as a gift for Saudi Arabia in the new year, the Saudi Energy Minister said, “The voluntary reduction in oil production is a sign of good intentions from the Saudi Crown Prince Mohammed bin Salman.”
It seems that Saudi Arabia, with this voluntary reduction, has largely regained its position during a long period extending from the mid-1980s to the end of the 1990s, when it was playing the role of complementary or counterpart product within OPEC. When the Kingdom was adjusting its production quota based on the production of other producers within the organization’s total production ceiling. It is true that the reduction this time is short-term for a period of only two months, and comes under relatively better conditions, as there is no collapse or a wave of decline in prices, but only an uncertainty regarding the future of demand in the short term. However, in essence, this voluntary reduction within the OPEC + alliance plays a role similar to what was playing the role of complementary or counterweight to the Kingdom of Saudi Arabia within OPEC. This comes within the expectation that market conditions during the second quarter of the year will be better and more certain compared to the first quarter of the year.
Opinions and information contained in opinion articles express the opinion of the author and do not reflect the direction of the newspaper
SOURCE : SAUDI 24
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