The world price of oil will fall despite OPEC agreement

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Last week the world prices for oil continued to decline, despite the agreement of OPEC+ on the restriction of the production of 1.2 million bar. a day for the next 6 months. OPEC agreed to cut production by 800 thousand. per day, and countries outside the OPEC by 400 thousand. a day, while Iran, Venezuela and Libya are excluded from the transaction. The main decrease will be in Saudi Arabia, UAE, Iraq, Russia.
While production will return to the level of October 2018 that Russia is very favorable, because in October oil production has reached a maximum value and reached 11.41 million bar. a day, the OPEC countries in October was extracted 32,96 million bar. a day.
The next meeting of the Ministerial Council of the OPEC+ (JMMC) is scheduled for January 2019, but will be conducted as necessary. A long-term agreement on the regulation of the oil market is planned to be signed in March 2019.
The price of oil is influenced by OPEC’s decision+ first started growing, but soon the market realized that the accumulated volumes are still in the market, and the production will be reduced from January 2018 that have renewed pressure on prices. As a result, the price of oil WTI is $52,26 per barrel, and Brent crude – $60,94 dollars per barrel. The spread between grades of oil as of December 13, 2018, was $8, 9, the ratio of the spread to the price of WTI was 16.9%.
According to the December report, the IEA, the balance of the oil market at the end of 2018 there will be excess, but by the end of the second quarter of 2019 are expected to recover the deficit. The increase in demand, the Agency left unchanged: in 2018, 1.3 million bar. a day in 2019 1.4 million bar. a day.
The supply of oil in November was $ 101, 1 million bar. per day, lower than in October due to lower production in the North sea, Russia and Canada. In November, OPEC raised production to 33.03 million bar. a day due to the growth in Saudi Arabia and the UAE. January production outside of OPEC will be reduced by 0,415 million bar. a day. Stocks in the OECD in October continued to grow, adding 5.7 million barrels, amounting to 2872 million barrels.
Iraq resumed exports of oil from Kirkuk in the amount of 50-60 thousand. a day through the port Ceyhan, after reaching an agreement between the Central government and regional authorities. The first shipment was bought by the trader Litasco (LUKOIL) for delivery in November, two more of the cargo planned to be delivered to the market in December.
After the start of the sanctions against Iran there is a shortage of heavy oil, which causes an increased demand for the Iraqi and Russian oil. Residual Iranian exports, according to estimates, from mid-2019 will be 1 million bar. a day.
Saudi Arabia announced it will cut oil exports in January to 1 million bar. per day to 7 million bar. a day. The bulk of the decrease will affect the supply in the United States, which will fall to 582 thousand. a day that will be for at least the last 30 years. When
the Americans continue to put pressure on the Saudis.
The U.S. Senate is considering a resolution condemning the crown Prince of Saudi Arabia Mohammed bin Salman for the murder of journalist Khashoggi. However, D. trump told Reuters that he supported the crown Prince (as the actual ruler of a strategic ally), saying that he has repeatedly denied any involvement in the murder.
Total reserves of oil and oil products in the United States on 7 December 2018 fell to 6 million bar. and
made 1889,5 million bar. Crude oil inventories last week fell by 1.2 million bar. to the same date last year, oil imports rose to 7,393 million bar. a day, exports once again fell to 2,274 million bar. per day, domestic production dropped to 11.6 million bar. a day.
As of December 7, 2018 the oil reserves in Cushing amounted to 39.4 million bar. vs 38,3 million bar. the week before last and 52.2 million bar. a year ago. Stocks in the strategic reserve has not changed and amounted to 649,6 million bar.
According to Baker Hughes, as of December 7, 2018 number of oil wells in the US declined by 10 units to the previous week and amounted to 877 units versus 751 units at the same date in 2017.
According to November data of U.S. Department of energy, oil production in November made up 11.51 million bar. a day, which is 1.3% higher than in October. Oil production in December is estimated at 11,62 million bar. per day, of which of 7.94 million bar. will be the production of shale oil.
American manufacturers welcomed the decision of OPEC to reduce oil production, because oil prices above $40 expand the drilling and to attract funding.
According to GAC, imports of oil to China in November 2018 amounted to 42,87 million tons, which is 5.6% higher than in October, and 15.7% more than a year ago. Oil imports during the first 11 months. 2018 rose 8.4% over the same period, 2017, reaching 418,11 million tons. Oil product exports in November from China fell by 23% yoy to 4.47 million tons, and for 11 months. 2018 increased by 14.3% to 52,56 million tons. According to NBS, the oil refining in China in October 2018 rose by 2.9% in annual terms, amounting to 50.5 million tons. In just 10 months. 2018 processed 554,3 mln tons, which is 7.2% more than in the same period of 2017.
Oksana Lukicheva
Analyst of commodity markets,
“Opening Broker”