The April meeting rarely canceled the rift of the global duopoly
Recently, partnerships centered on Saudi Arabia and Russia have shown signs of tension.
On Monday, OPEC and Russia rarely canceled the meeting that would have been held in April, which means that the meeting will be postponed until June, and at the same time, the oil-producing countries may not decide whether to extend the production cut-off period.
In a meeting held in Baku, Azerbaijan on the same day, Russian Energy Minister Alexander Novak persuaded the committee responsible for supervising the production cut, saying that it was too early to discuss whether to further extend the production reduction agreement in April. In other words, Russia does not want to review the current production cuts plan next month.
Bloomberg quoted a representative of the oil-producing countries who participated in the report as saying that despite the general support for extensions within OPEC, member states including Iraq privately expressed their support, but Novak still expressed objections. Andrew Dodson, founder of commodity hedge fund Philipp Oil, believes:
The delay in the oil-producing countries meeting seems to mean that Russia is reluctant to commit to more production cuts and to postpone decisions as much as possible before making further commitments to cut production.
However, Saudi Energy Minister Fahrenheit has previously expressed a position that tends to make a decision on whether to continue production in April.
Middle Eastern oil producers attending yesterday’s meeting said they will overtake the promised cuts in the coming months. Farifhe hinted at the determination to insist on reducing production: "As long as the inventory level is rising and far below normal, we will stick to it and guide the market to balance."
But Russia does not seem to want to cut production further. Reuters said yesterday that according to its Russian Ministry of Energy quarterly export plan, crude oil exports and transfers from Russia from April to June are expected to reach 62.8 million tons (this is significantly higher than the 61.7 million tons in the first quarter). Reuters estimates that Russia's average daily crude oil exports in the second quarter will increase by 0.74%.
In Russia's production reduction agreement, Russia agreed to cut average daily production by 228,000 barrels in the first half of this year.
OPEC or the partner of Saudi Arabia and Russia have maintained a relatively consistent position on this issue since the formation of the end of 2016. The energy relations between the two countries are generally friendly. This unprecedented cooperation has reshaped the global crude oil market and created a new geopolitical partnership.
From the current position, the unanimous position of Saudi Arabia and Russia began to split. Farifhe said that the market rebalancing work is "far from completion." Novak said in an interview on Sunday that "the market has achieved a fragile balance, so it will adopt a wait-and-see attitude on whether to extend the production reduction agreement."
Earlier, the Russian Tas and the Interfax news agency quoted a source close to OPEC as saying that Saudi Arabia proposed to extend the existing production reduction agreement to the end of 2019. The current production reduction agreement will expire at the end of June.
According to Bloomberg, the core of the current oil-producing countries' combined efforts is a weak balance: Saudi Arabia needs to sell crude oil at a price of $95 a barrel to support the state's finances. Russia's dependence on crude oil is more flexible, its industrial base is more diversified, and its 2019 budget is based on 40 dollars per barrel.
Since the beginning of this year, international oil prices have rebounded sharply, and Brent oil prices have risen by about 25%. This has given Russia the incentive to reduce production cuts in order to increase national energy revenues.
Investors' understanding of yesterday's meeting was relatively positive, because no matter what differences of opinion existed between Saudi Arabia and Russia, at least from now until the end of June in Vienna, the overall reduction in production will continue.
As of Monday's close, WTI April crude oil futures closed up 0.57 US dollars, or 0.97%, to 59.09 US dollars / barrel. Brent May crude oil futures closed up 0.38 US dollars, or 0.57%, to 67.54 US dollars / barrel.
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