The title picture is from Visual China, this article is from the WeChat public account: Look Wang Think Tank (ID: zhczyj) < / span> , Text: Zhang Longxing (Director of Oil Business Unit, Shanghai Oil and Gas Exchange Center), Editor: Dai Lili

OPEC + finally reached a historic production reduction plan on the evening of April 12.

The OPEC + meeting that began on April 9 did n’t settle until the evening of April 12, and the process went up and down. Mexico refused to cooperate, and the G20 did not mention production cuts. However, OPEC countries led by Saudi Arabia and non-OPEC countries led by Russia finally reached a historic output reduction agreement, which ended the oil price war with serious consequences.

Behind the outbreak of the price war in March, the re-scramble and redistribution of market share by the three major oil-producing countries in the world is an important reason. However, the destructive and impact of the new coronary pneumonia epidemic in the world, especially in Europe and the United States, caused the collapse of oil demand. This price war became a war launched at the wrong time.

The negotiation of the production cut agreement resulted in the strongest in the United States, Saudi Arabia in the three major oil-producing countries, and Russia in the most calm. However, the deep structural contradictions of the three countries of the United States, Russia and Russia have not been resolved. The current peace between the three countries is a temporary concession to the current extremely distorted market.

The question now is: At a time when oil demand has plummeted due to the new crown epidemic, is such a reduction in production sufficient to support prices?

One, supply and demand double kill, the price war is unsustainable

On March 6, OPEC + ‘s production cut negotiations in Vienna broke down.

The differences between the parties were:

The OPEC countries headed by Saudi Arabia demanded an additional output of 1.5 million barrels / day in the second quarter. At the same time, the 2.1 million barrels / day output reduction reached at the end of last year and implemented on New Year ’s Day this year was maintained until the end of this year. The total output reduction reached 3.6 million barrels per day. In the plan to reduce production by an additional 1.5 million barrels per day, OPEC bears 1 million barrels and countries outside OPEC bear 500,000 barrels.

The attitude of non-OPEC countries headed by Russia is to maintain the current scale of production reduction until the end of the second quarter.

On March 7, Saudi Arabia sharply lowered the official sales discount of crude oil (the discount of the actual sales price relative to the benchmark price) . In the Asia-Pacific region, the discount for the Arab light crude oil decreased from +2.9 USD / barrel to -3.1 USD / barrel, a decrease of 6 USD / barrel; the discount for Northwestern Europe was 8 USD / barrel; the discount for the Mediterranean region was 7 USD. /barrel.

With such a huge price reduction, Saudi Arabia announced that crude oil output will increase from 9.73 million barrels / day in January this year to 12 million barrels / day.

At the same time, the New Coronary Pneumonia epidemic began to erupt in the world, especially in Europe and the United States. On March 11, the United States announced that the United States will suspend travel to the United States from all European citizens except the United Kingdom on the 13th. This measure will last 30 days.

In 2018, the global GDP was 85.791 trillion U.S. dollars. In the same year, the annual GDPs of the 28 countries of the United States and the European Union were 20.494 trillion U.S. dollars and 18.74 trillion U.S. dollars respectively, accounting for 45.73% of the global GDP. The partition was undoubtedly a major blow to the financial market under the US dollar hegemony system, and U.S. stocks melted several times. Under the closure of the European and American countries, the demand was ruthlessly strangled, the supply-side price war was fierce, and the commodity nature of oil caused the price of oil to fall and fall again.

A few days ago, the Minister of Energy of Alberta, Canada stated that the global crude oil demand may be reduced by 20-35 million barrels per day, which is basically the range of demand collapse recognized by the market. And allThe daily demand for global crude oil is 100 million barrels per day under normal conditions. The huge pressure of oversupply at the spot end drives the market to have a deep positive market structure. Onshore and offshore crude oil storage demand continues to soar, and crude oil freight rates have soared.

The TD3C tanker freight rate of 300,000 tons of supertankers representing the Persian Gulf to the Far East has gone out of madness, and has soared from 54.58 points on the first working day after the start of the Saudi price war on March 9 to March 16. 223.58 points, although adjusted, but rushed back to 207 points on March 31.

The above picture shows the TD3C tanker freight rate and Brent market trend from the beginning of this year to the end of March

On the day of March 31, TD3C at 207 points (Saudi Ras Tanura to Ningbo freight base price is 21.90 US dollars / ton, ton freight is 2.07 * 21.90 = $ 45.33) , the freight cost of the 300,000-ton supertanker from Meiwan to China is US $ 20 million (2 million barrels of capacity, barrels cost US $ 10) , WTI ’s May crude oil futures reported US $ 20.1 / barrel, Brent ’s June crude oil futures were at US $ 25.92 / barrel, here we ignore the conversion of futures and spot prices, the Middle East crude oil adopts Brent June crude oil futures prices, U.S. crude oil mining May WTI crude oil futures price, 7.3 tons per barrel and Saudi official price discount-3.1 US dollars / barrel to do a rough calculation-

We will find that the ratio of online freight and value of goods returned to the Middle East is:

45.33 / 7.3 / (25.92-3.1) = 27.3%

The ratio of freight and value to the Gulf of America has reached an astonishing ratio:

10 / 21.90 = 45.66%

Whether returning to the Middle East, West Africa or the US Gulf, the ratio of freight and value is normally only 4%. It can be said vividly that the international oil industry has emerged for the first time, and the phenomenon of affording oil charter cannot be afforded.

The following chart reflects the structure of US crude oil export destinations in 2018, and the Asia-Pacific region already has one in four.

For ordinary people, our perception of international oil prices is more of the changes in WTI and Brent in the news, but the futures price is not the whole price of crude oil. From the perspective of spot operations, premiums and discounts, freight costs and warehousing and logistics capabilities are the core issues related to profit and loss. In the case of oversupply, prices far from the end consumer market often deviate from the value. On the one hand, the base price is very low, and on the other hand, the freight is posted.

Because both the US and Saudi crude oil exports are highly dependent on shipping, Russian crude oil exports are highly dependent on pipelines. Shipping is often provided by independent third-party shipping companies, while Russian pipelines are more owned by the state. Therefore, in the extremely distorted spot market, Russia has an asymmetric competitive advantage.

In view of the high cost of shutting down oil wells and the interruption of cash flow of oil companies, many ports and refineries have stopped accepting crude oil from tankers, leading crude oil producers to dispose of excess crude oil at very low prices Reluctant to stop production, there have been reports that inland shale oil producers in the United States have paid money to dealers only to take away crude oil.

Due to shrinking demand, OPEC + failed to reach a production cut agreement in March, crude oil supply increased, and global inventories may soon reach their maximum limits. Even though OPEC + began to limit production, the oversupply caused by the global transport blockade is still very large, and it is expected that the crude oil storage capacity may reach its limit by the middle of the year.

At this stage of the price war, the continuous extraction of crude oil will only make most of the world’s crude oil producers lose money. Even if Saudi Arabia ownsWith the lowest production cost in the world, Saudi Arabia also has to accept the bitter results of meager profits being repulsed by high freight rates.

Second, but deep-seated contradictions have not been resolved

In 2018, global crude oil production was 4.6 billion tons, the United States was 670 million tons, Russia was 560 million tons, and Saudi Arabia was 520 million tons. The crude oil production of the three countries reached 38% of global crude oil production.

At the end of 2016, since OPEC + officially formed an alliance, Russia and Saudi Arabia have been sacrificing market share to maintain fragile oil prices. US shale oil took the opportunity to attack the city, low-sulfur light US crude oil was very popular in the Asia-Pacific market, and became the core component of the increase in crude oil supply side.

Relying on the shale oil and gas revolution, the United States achieved energy independence, and at the same time, the United States began to penetrate Europe, the traditional sphere of influence of Russian energy.

In terms of petroleum, as shown in the chart below, since the OPEC + alliance in 2016, US crude oil exports to Europe have risen sharply, and the US crude oil exports to Rotterdam from the Netherlands have a growing influence on Brent pricing.

In terms of natural gas, US shale gas has also aggressively entered the European natural gas market in the form of liquefied natural gas, seizing the Russian pipeline gas market share. As shown in the chart below, the US LNG export to Europe has grown linearly in recent years.

U.S. adoptedProvoked the natural gas dispute between Russia and Ukraine, so that Ukraine does not rely on Russian natural gas, and took the opportunity to attack Russia.

In December 2019, the United States used long-arm jurisdiction to sanction Russia ’s Beixi No. 2 natural gas pipeline route from Germany to Germany.

As shown in the figure below, Beixi No. 2 is of great strategic significance to Russia’s pipeline gas exports to bypass Ukraine.

In February 2020, the United States sanctioned Russian oil on the grounds that Russian oil trading subsidiaries operate Venezuelan crude oil.

Russian Gas and Rosneft are Russian state-owned energy companies and have a crucial overall role in the Russian economy.

Natural gas accounts for 24% of the world ’s primary energy, behind coal and oil. Some organizations predict that natural gas will surpass coal as the second largest energy source in the next 20 years. By the middle of the 21st century, it will surpass oil as the world’s largest energy source, and there is huge room for growth in the demand for natural gas.

The United States is the global leader in horizontal wells and staged fracturing technology. The shale gas phase is easier to recover than shale oil. Considering the unique geological structure of oil and gas reservoirs in the United States, shale gas in the United States is more economical than shale oil. Therefore, US sanctions on Beixi No. 2 have strategic considerations.

Under Trump’s slogan “Make America Great Again”, US energy independence has given Trump weapons. The adjustment of the US global energy strategy is overall, and the conflict between the US and Russia is a structural one, which is difficult to resolve.

Three, the new crown epidemic has caused changes in relations between countries

Russia has the idea of ​​using this price war to test the US shale oil bottom line, and the United States has strongly countered this idea.

The United States that achieves energy independence will not easily give up shale oil. The Fed has continuously injected liquidity and directly purchased corporate bonds. According to the latest news, large US bankers are preparing to participate in the operation of oil and gas fields for the first time in a generation.In order to avoid the loans issued by them as the energy companies go bankrupt, they will lose their money.

Texas is also a Republican iron plate. In the election year, Trump could n’t afford to lose in the oil major Texas, so Trump actively intervened after the previous cold eye.

The United States is very strong in this production cut, and has been using military and economic means to check and balance Saudi Arabia, including the withdrawal of military bases from Saudi Arabia and the imposition of energy tariffs on Saudi Arabia.

In the face of a profit reduction agreement between Saudi Arabia and Saudi Arabia, the Texas Railroad Management Committee will hold a production-limiting meeting on April 14. As the Texas oil industry regulator, whether the agency will promote the first oil production limit in 1973 is worthy of attention.

Under the price war launched by Saudi Arabia, other OPEC members have faced the double killing of the outbreak and the collapse of international oil prices, which is difficult to continue. Saudi Arabia, who has been OPEC ’s big brother since 1960, must make changes.

Since the OPEC + video conference on April 9th, Saudi Arabia, which has the strongest mobile production capacity, has been actively mediating, and has repeatedly pushed the announcement of the official price discount of Saudi Arabia. It has been released on the 5th of each month from the past. The official price discount was first pushed to April 10, and with the twists and turns of the meeting, Saudi Arabia has repeatedly postponed it because it is unwilling to destroy the production cuts that it is difficult to obtain. On the evening of April 12, Saudi Arabia convened OPEC + for its final efforts and achieved success.

Under the current situation of spot supply and demand, there is no place to cut oil production without further reduction. Saudi Arabia can no longer be wayward. Only the leader can take the lead, actively mediate and set an example. This is also in line with Saudi Arabia’s image of the global oil industry stabilizer for many years.

On April 13th, Saudi Arabia finally released the official price discount of crude oil. Compared with the previous month, the discount for Arab light crude oil in the Asia-Pacific region was US $ 4.2 per barrel; the discount for Northwest Europe remained flat; and the discount for Mediterranean region It is 1 USD / barrel. The difficulty of selling crude oil in the spot market has led Saudi Arabia to maintain its market share in the Asia-Pacific region, especially China, after reaching a production cut agreement.

In Russia, facing the enormous pressure that the country’s epidemic situation may erupt, making a temporary compromise is also time for space.

Russia attaches great importance to lifting Russian gas and oil sanctions, and does not rule out the United States making concessions at an appropriate time.

Overall, the new crown epidemic has spawned changes in relations among countries. In just a few days, it has been able to coordinate multiple countries to reach an unprecedented production reduction agreement. Both the United States and Russia have made great efforts.

Compared to the 20 million barrels previously released by TrumpThe scale of production cuts every day, this agreement is more like holding up and letting go.

The production cut agreement that is better than nothing is expected to have a bottoming effect on the market and prevent the market from crashing. However, the commodity attributes of crude oil determine the price to be more determined by demand. In the face of the current extremely collapsed demand in the second quarter, short-term international oil prices are expected to Will continue to be weak.

The New Coronary Pneumonia epidemic now has an inflection point in Europe, and the mortality rate began to decline in the United States last weekend. The darkest moment in Europe and America may have passed, but our experience shows that it will take time to resume production in Europe and America, and the European and American countries are closed. The implementation of the closure of the country is relatively weak, and it needs to be vigilant and repeated. At the same time, the new coronary pneumonia epidemic is expected to have an outbreak in emerging countries. OPEC + ‘s pessimism about market expectations reminds us that the new coronary pneumonia epidemic will continue to impact the market.

This article comes from the WeChat public account: Looking Think Tank (ID: zhczyj) , Text: Zhang Longxing (Director of Oil Business Unit, Shanghai Oil and Gas Exchange Center), Editor: Dai Lili