International Oil Prices Fall Again! OPEC's Attitude Is Up In The Air

International oil prices fell sharply again on the 30th!

As of the close of the day, the price of light crude oil futures for delivery in January 2022 on the New York Mercantile Exchange fell 3.77 US dollars to close at 66.18 US dollars per barrel, a decrease of 5.39%. The price of London Brent crude oil futures for delivery in January 2022 fell by 2.87 US dollars to close at 70.57 US dollars per barrel, a decrease of 3.91%.

According to foreign media reports, this is due to the market's skepticism about the effectiveness of existing vaccines to prevent variants of the mutant virus Omicron, which has caused concerns about a global economic slowdown. And whether such worries will push down the oil price market for a long time, and what will be the oil price trend next year? The judgments of the parties are clearly divided.

OPEC + monthly meeting production policy will have an important impact on recent oil price trends.

01. OPEC suspends production increase?

OPEC+ will hold an online meeting this Thursday night Beijing time to determine the oil production in January next year. Based on the oil price plummeting by more than 10% last Friday and falling again on the 30th, this meeting attracted great attention from the oil industry and other financial markets.

According to media reports, Russian Deputy Prime Minister Alexander Novak said on the 29th that Russia believes that it is not necessary for major oil-producing countries to urgently adjust their crude oil production strategies due to the spread of the Omicron strain of the new crown mutant virus. The Saudi Energy Minister also stated that he is not worried about Omicron. The CEO of Saudi Aramco said that the oil market has overreacted to the new variant virus.

The reaction of OPEC and partner countries seems to be calm and light, but many energy and financial analysis institutions believe that from the past positions of OPEC and partner countries, it would not be possible for oil-producing countries to announce a moratorium on increasing crude oil supply at this week’s monthly meeting. Surprising, because then oil prices will be supported.

Rystad Energy analysts said that oil-producing countries will either continue their conservative policy of increasing production by 400,000 barrels per day each month, or take more cautious operations to further tighten supply before the new crown epidemic has more certainty.

UBS believes that OPEC and partner countries may suspend increasing crude oil production or cut supply. Commonwealth Bank of Australia Energy Commodity Analyst also believes that in the case of a mutant virus and the release of crude oil reserves by major oil-consuming countries, OPEC and its partner countries will tend to suspend the increase in crude oil supply.

Citigroup analysts said that due to the insufficiency of many of OPEC’s oil production capacity, the actual average monthly increase in crude oil production by OPEC and its partners in reducing production is far less than 400,000 barrels per day.

In fact, OPEC keeps an exceptionally close watch on global oil inventories.

According to foreign media reports, the Energy Intelligence Corporation prepared an internal report for the OPEC+ Organization Technical Committee meeting that the growth rate of global oil inventories will exceed previous expectations. The report shows that OPEC+ expects global oil supply in the first quarter of next year to exceed demand by as much as 3 million barrels per day.

Before the oil price crash on Friday, OPEC had predicted that after the United States and other major consumer countries decided to release oil inventories to help stabilize prices, market surpluses would increase substantially.

02. What is the outlook for oil prices in 2022?

Due to the large differences in market supply and demand judgments, research institutions currently have obvious differences on the trend of international oil prices next year.

The Sevens Report, a US market research publication, believes that as long as no new epidemic ban measures derail the economic recovery, oil prices should stabilize.

Swissquote Bank believes that as far as oil prices are concerned, the market’s instinctive reaction to the mutant virus may be “overdone”. If there is no worse news, oil prices may return to around $74 per barrel; if there is worse news, oil prices should go further. Falling to below 70 US dollars per barrel, but this will also give rise to OPEC's expectations of tightening crude oil supply, and oil prices have limited room for decline.

According to a monthly Reuters survey conducted by Reuters, OPEC+'s cautious production policy next year is expected to keep oil prices above US$70, and the average price of Brent crude oil in 2022 is expected to be US$75.33 per barrel.

Analysis by Mehrana Hejawani, managing partner and emerging market strategist of MRB Partnership, a macroeconomic research organization, analysis: The shortage of oil supply is due to the reluctance of oil producers to believe in the continuity of oil demand recovery, so they continue to control supply . Although oil demand growth will remain strong next year, supply growth is likely to meet demand. He predicts that Brent oil prices are likely to fall back to the $60 to $70 range per barrel in 2022, rather than continue to rise from the current level.

UBS and JPMorgan Chase are more optimistic about oil prices.

UBS said that the global average daily oil demand has now returned to the level of close to 100 million barrels, and the recovery of oil demand is expected to continue. While OPEC and partner countries still maintain control over the oil market, oil prices are still expected to rise to US$90 per barrel in March 2022, and then fall back to around US$85 per barrel during the rest of next year.

JPMorgan Chase believes that considering the low actual surplus production capacity of OPEC and its production reduction partners, Brent crude oil futures prices will exceed US$125 and US$150 per barrel in 2022 and 2023, respectively.

Regarding the production capacity of oil-producing countries, a Reuters survey report this week also revealed that OPEC’s November oil production was 27.74 million barrels per day, an increase of 220,000 barrels from the previous month. The increase in production was once again lower than the previous agreement reached with the allies Plans to increase production. Before this week's policy meeting, the shortage of oil production and domestic energy has become a major focus, which may become a key factor in pushing up oil prices.