The December 0PEC+ Conference Is Coming. The Five Major Factors Will Become The Focus Of The Market.

In December 5th, the seventh OPEC and non OPEC ministerial conference will be held in Vienna, Austria. The task is to reach agreement on how to manage oil production in 2020.

Despite fears that global oil demand is weak, US oil production is still strong, but some manufacturers believe that the current price of Brent crude oil is slightly higher than $60 per barrel, which is a satisfactory level.

For this meeting, oil market observers will focus on the following five points:

1. A yield reduction agreement for 2020

The current yield reduction agreement of 1 million 200 thousand barrels per day will expire at the end of March 2020. Market concerns officials decided this week to extend the agreement, or further deepen production cuts. Analysts expect that the current agreement will drag on to the middle of next year or even longer, and some countries will push for a higher rate of production reduction.

Although Saudi Arabia, Kuwait and Angola have cut yields more than the agreement, Iraq and Russia have seen a significant reduction in output. Giovanni Staunovo, an economist at UBS, said that maintaining the current yield reduction agreement is the most likely outcome and the "least resistance way". For oil producing countries, the danger is that some oil traders believe that more oil production may be needed to support oil prices.

Two, Saudi Arabia's marginal policy and Saudi Amy's IPO

Saudi Arabia official said Saudi Arabia's new oil minister Salman is expected to put pressure on those countries that do not comply with their cuts in production to comply with existing production cuts.

Anmrita Sen, an analyst at Energy Aspects, an information agency, said the experienced oil diplomat is expected to take a more tough stance than his predecessor, Amrita. He warned that if OPEC Member States did not fully comply with the share of production cuts in December and January next year, Saudi Arabia would no longer take the lead in reducing production and may increase its oil production. Saudi Arabia is willing to implement more than quota cuts, but the premise is that other countries are also doing their part.

This tough strategy may be a way for the Minister of petroleum to exercise power over OPEC, but there are also some risks. Saudi Arabia needs higher oil prices, especially when ministers met in Vienna in December 5th, because Saudi Amy's shares will be priced before the long-awaited state oil companies are listed.

However, people who understand the Saudi position say that the Saudi side believes that, in any case, the oil market will tighten in the coming months, and officials are satisfied with the current oil price level, which means they can take the risk at present.

Three, will Russia drag its legs?

With Prince Abdelaziz of Saudi Arabia's energy minister taking the Saudi delegation to the OPEC+ conference, the oil alliance between Saudi Arabia and Russia will be concerned. For decades, the prince has given priority to OPEC's other countries and competitors, but now recognizes the importance of solidarity for OPEC's long-term survival.

After the oil price slump in 2014, Saudi Arabia sought help from Russia instead of other OPEC members. Under the leadership of former Saudi oil minister Falich (Khalid al-Falih), strengthening relations with Russia has become a priority.

Now, the market is concerned about whether Russia is willing to comply with the reduction agreement. Carsten Fritsch, an economist at Commerzbank, said: "in the past 11 months, Russia has exceeded the agreed target of reduction in 8 months." (Selfridge)

For a long time, local oil companies have always believed that reducing production will only subsidize competitors. The chief executive of Russian oil company Lukoil recently said there was no reason to extend production to March 2020. All this means that Russia's attitude towards production cuts may be variable. However, it is worth noting that the alliance between Russia and Saudi Arabia is not only related to short-term oil prices, but also to the strategic relationship approved by President Putin.

Four. Oil supply pressure from outside OPEC

The International Energy Agency said last November that OPEC will face a "major challenge" in 2020, as competitors accelerated production and weakened their efforts to control oil production. In addition to Russia's output exceeding its requirements, OPEC also tries to grasp how much room for growth in the US shale oil industry.

Paul Horsnell, an economist at Standard Chartered Bank, said that the US crude oil supply was the main variable in the oil market in 2020. At present, there are two big gaps in the market. One forecast is that the global economic growth has slowed down sharply. Another forecast is that the economy will accelerate growth.

The market expects that Brazil, Norway and Guyana will increase their oil supply. This means that the amount of oil that OPEC needs to fill any gap will drop in 2020. That is why some analysts believe that if OPEC and its allies do not further cut production, oil prices may be partly responsible for some pressure after the end of the conference.

Five, signs of weak global oil demand.

International trade tensions and global economic weakness have forced global oil companies to withdraw their assumptions about demand growth. OPEC also said there are signs that the pressure is likely to weigh down oil demand.

David Fyfe, chief economist of Argus, a price reporting firm, says oil producers are facing a delicate balancing act. Further cutting production to avoid global inventory growth will push the market share of OPEC down to a sustained low level since the early 90s.

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