Saudi Arabia Sends An Unexpected New Year Gift To Global Oil Market

On January 6, Beijing time, Saudi Arabia sent an unexpected "New Year's gift" to the global crude oil market in a way that was beyond everyone's expectation.

Prince Ben Salman, Saudi Arabia's crown prince and Minister of energy, announced on the same day that Saudi Arabia will unilaterally cut production by 1 million barrels / day in February and March this year. "We are the guardians of the oil industry!" Prince Salman stressed that "this decision was made unilaterally by me."

As soon as the news came out, the global crude oil market soared. On the same day, Brent crude oil once rose to 54.6 US dollars / barrel, the highest level in nearly 10 months; WTI crude oil rose all the way through the $50 barrier, reaching a peak of $50.69/barrel.

"This statement of Saudi Arabia is very unexpected." A person from a central oil enterprise told the 21st century economic report that "before that, no matter the institutions or oil companies, even Saudi Arabia's own allies in OPEC, were completely unaware of it. If the production reduction is really implemented, it will effectively accelerate the process of rebalancing the global crude oil market."

He said that the global crude oil market had entered the process of reducing its reserves in the third and fourth quarter of last year after accumulating reserves in early 2020. "The gap between supply and demand is about 2.3 million barrels per day." "Saudi Arabia's production cuts can completely erase the excess supply," he said

The gift of surprise

On January 5, Beijing time, OPEC's energy ministers gathered on the line to discuss the crude oil production reduction agreement in February this year. However, the meeting was deadlocked for two days and finally failed to reach the agreement expected by the market, that is, to extend the scale of production reduction in January this year.

The agreement was made on December 3 last year by the 12th OPEC and non OPEC ministerial meetings that an average daily increase of 500000 barrels from January 2021 will be shared equally by all Member States. Russia and Saudi Arabia will be allowed to increase their crude oil production by another 126000 barrels per day, and then decide to make adjustments on a monthly basis.

On the news side, the two sides that hinder the agreement are mainly Saudi Arabia and Russia. The former thinks that the current crude oil market is relatively fragile and needs to continue the intensity of production reduction in January; while the Russian side has expressed different opinions, and its energy minister Novak has repeatedly said publicly that it is possible to increase the daily output by 500000 B / d.

In the end, the meeting held on January 5 reached a rather "fragmented" result: most of the Member States maintained their previous production reduction quotas, and Russia and Kazakhstan will increase their supply by 75000 B / D in the next two months.

Of course, such a result is not enough to meet the expectations of the market for OPEC and the judgment of the current supply and demand structure of the crude oil market. As a result, the Saudi Crown Prince's "superhero" reduction of production and rescue of the market caught all market participants by surprise.

On Wednesday, Beijing time, not only did crude oil prices rise to the highest level since the outbreak of the new crown outbreak, but the forward Futures Spread of WTI crude oil also soared to a one-year high, forcing a large number of previously bearish investors to buy back their bets.

"We have a responsibility to maintain the market and we will take all necessary actions." Prince Ben Salman told the media, "those who listen to us now have a harvest, others, good luck to them."

"First of all, this statement of Saudi Arabia avoided the oil price war that happened last year." "Secondly, this statement will allow Saudi Arabia to become a 'swing producer' in the oil market again in the next two months at least," the said person told reporters

However, he also told reporters about OPEC's future concerns. "Obviously, allowing Russia and Kazakhstan to increase production is not in line with Saudi Arabia's previously held idea that OPEC + countries should undertake to reduce production." "Coupled with the impact of oil prices on other Member States, there may be some problems with the cohesion of the organization," he said

China maintains import strength

In March 2020, the outbreak of the new crown epidemic in the world, the collapse of the OPEC agreement on production reduction, and the outbreak of crude oil price war immediately led to the decline of oil prices, even negative oil prices.

At that time, China's epidemic situation was properly controlled and its economic development was recovering rapidly. In addition, the domestic inventory consumption was fast, and the demand was gradually rising. At that time, China became one of the countries with the largest increase in crude oil demand.

According to the latest data collected by standard & Poor's global Proctor on January 6, the import volume of crude oil and asphalt mixture of China's independent refineries in 2020 increased by 42.2% year-on-year, reaching a record 188.1 million tons. The annual growth rate exceeded 25% in 2019 and 13.9% in 2018, making it the fastest growth year after the state issued import quotas to private refineries.

"In fact, it is mainly due to the relatively long period of low oil prices." A market trader told reporters, "at that time, the crude oil price was hovering around $20-30 / barrel, and they were very active in purchasing crude oil." According to the reporter's comparison, the total import volume in 2020 is 4.9% higher than the import quota. The vigorous import enthusiasm leads to long-term congestion in some ports in Shandong Province from May to September in 2020.

However, due to the lack of quota, the import volume in December 2020 is not high, "including oil tankers parked outside the port, waiting for the quota to be further issued before entering the port for delivery." The people said.

In late December 2020, the Ministry of Commerce issued 119 million tons of crude oil import quota to 43 eligible independent and non large state-owned refineries. This is the first batch in 2021, an increase of 19% over the first batch in 2020. China's import in January will also exceed the level of December 2020.

In terms of crude oil production, despite the rapid decline in global oil prices in 2020, the trend of increasing domestic reserves and production has not changed.

On January 1, 2021, 21st century economic reporter learned from CNPC that PetroChina's domestic oil and gas production equivalent exceeded 200 million tons for the first time in 2020, which is another historic leap after the crude oil production exceeded 100 million tons in 1978.

It is worth mentioning that natural gas production equivalent exceeded 100 million tons for the first time, with a year-on-year increase of 11.6 billion cubic meters, which was the largest increase in history, exceeding domestic crude oil production for the first time, accounting for half of the country.

Zou Cai, academician of the Chinese Academy of Sciences, said that in the past, PetroChina was mainly engaged in oil production, and the oil equivalent of natural gas production will slightly exceed the oil production in 2020, indicating that PetroChina will enter a new stage of stable oil and gas production, which is of great significance. "It is estimated that by 2025, China's natural gas production will exceed oil production, China's oil industry will enter a stable development stage, and the natural gas industry will enter a new stage of leapfrog development." Zou said.