Source: Gelonghui

On June 5, when trading began today, the Hong Kong stock oil and gas sector was active for a while. As of press release, there was some decline. CNPC shares rose more than 1%, China Petroleum & Chemical Co., Ltd. rose nearly 1%, and CNOOC declined slightly.

According to the news, on June 4, local time, according to information from the Saudi Ministry of Petroleum, in order to cooperate with the “OPEC+” meeting to jointly maintain the stability of the international crude oil market, a voluntary reduction in crude oil production will be increased by another 1 million b/d from the previous voluntary reduction in crude oil production of 500,000 b/d to 1.5 million b/d for a period of one month. Production reduction measures may be considered for an extension.

Affected by OPEC+'s extension of the voluntary production reduction agreement, WTI crude oil opened higher on Monday and once rose more than 3%. As of press release, WTI crude oil's July futures rose 1.28% to 72.66 US dollars/barrel; London Brent crude's August futures rose 1.10% to 76.97 US dollars/barrel.

Goldman Sachs believes that this production cut shows Saudi Arabia's determination to continue fighting bears. But as market sentiment remains weak, this meeting may only mean “moderately bullish.” The value of Saudi Arabia's additional production cuts this time depends on the duration of production cuts.

Since May this year, Saudi Arabia has voluntarily cut crude oil production by 500,000 b/d. Saudi Arabia's production cut was the country's highest in years, dropping its production to 9 million b/d, the lowest level since June 2021.

Agency: It is expected that oil prices will remain high this year

Looking back at the oil price trend in the past two years, oil prices first went up all the way up due to factors such as OPEC production cuts and the decline in Russian crude oil production due to the Russian-Ukrainian conflict. Afterwards, overseas economies slowed down in anticipation of the Fed's interest rate hike, compounded by the recent spread of market panic caused by Silicon Valley Bank, and the oil price fluctuation weakened.

However, according to the IMF report, fiscal balance oil prices in major OPEC countries are still high.

Take Saudi Arabia as an example. In 2022, its fiscal balance oil price was about 70-80 US dollars/barrel. OPEC+ cut production again in October 2022. In addition to Saudi Arabia, many oil-producing countries such as Russia, Iraq, the United Arab Emirates, and Kuwait also announced on April 2 that they will voluntarily cut crude oil production from May to the end of 2023. It is predicted that the oil supply and demand side will become even tighter in the future, and crude oil prices may be lower and higher this year.

Furthermore, for the oil and gas industry as a whole, although new energy is developing rapidly, it still faces bottlenecks in terms of high costs and efficiency conversion. The position of traditional energy is still prominent, and the world's demand for oil and gas resources will continue to grow over the next ten years.

OPEC expects demand for U.S. crude oil to decline in the first half of 2023, demand for crude oil from China and India will rise, and high inflation will slow economic growth in Europe and the US. China and India are the main forces driving the recovery in crude oil demand. Benefiting from improved demand in Asia, the region is expected to reap more operating profits.

Furthermore, domestic oil and gas companies are mostly integrated, such as CNPC, Sinopec, etc., and can obtain the profitability of the entire industry chain. Overseas companies account for a relatively small share of refining and refining. For example, Occidental Petroleum accounts for 18%, and British Petroleum accounts for 1.2%.

On the policy side, previously, the National Energy Administration issued a notice on issuing an action plan to accelerate oil and gas exploration and development and integrated development of new energy sources (2023-2025).According to the notice, the goals of the 2025 plan are: 1) steady growth in oil and gas supply, a cumulative increase in the supply of natural gas commodities by about 4.5 billion cubic meters of clean replacement, a cumulative increase of about 3 billion cubic meters of natural gas, and a cumulative increase in crude oil production by more than 2 million tons; 2) strive to build a “low carbon” and “zero carbon” oil and gas production system; 3) vigorously promote the development of new energy industries and continuously promote the transformation and upgrading of the energy production and supply structure.

Tianfeng Securities Research Report pointed out that after ESG restrictions were raised in 2021, the petroleum industry ushered in an improved competitive pattern. The bank believes that the new oil price center is expected to rise back to around 80 US dollars/barrel. The oil company's valuation repair came from two aspects in terms of financial indicators:

1) The increase in profits and operating cash flow brought about by the rise in the oil price center;
2) Shareholder returns have increased dramatically due to the increase in dividend repurchase ratio.

Dongwu Securities said that it is expected that oil prices will remain high in 2023. In the context of energy structure transformation, international oil companies still maintain a prudent and restrained production rhythm. Capital expenditure is limited, and the will to increase production is insufficient; affected by sanctions, Russian crude oil production capacity is insufficient and will decline to a certain extent; OPEC+ supply elasticity has declined, the will to reduce production and support oil prices is strong, and Saudi Arabia's ability to control prices has increased; the increase in US crude oil production is limited. There have been production bottlenecks for a long time, and they have switched from releasing strategic crude oil inventories in 2022 to the 2023 replenishment cycle. The domestic economy has recovered this year, leading to an increase in global demand for crude oil. Overseas markets may worry that the economic recession will cause a decline in crude oil demand.

On a domestic and international basis, global demand for crude oil continues to grow. The bank believes that a sharp drop in oil prices is unlikely, and that oil prices may continue to run at a high level.

Editor/jayden