After three consecutive delays, the regular meeting of OPEC + production cuts in July ended with cancellation. As the alliance failed to agree on the scale of production cuts after August and the policy direction for next year, the international oil market was volatile, with Brent crude prices jumping to their highest level in three years and WTI crude prices hitting their highest level since November 2014.

The United Arab Emirates is "resolutely uncompromising"

OPEC + originally planned to hold a regular meeting on production reduction on July 1, but it was postponed to July 2 because of differences, and then postponed to July 5, but before the formal meeting on that day, due to the tough attitude of the United Arab Emirates, Saudi Arabia and Russia jointly announced the cancellation of the regular meeting after more than two hours of "tossing".

The Financial Times pointed out that this is the first time that OPEC + has cancelled the regular meeting of production cuts. It is understood that Saudi Arabia and Russia have proposed to increase production by 400000 b / d per month from August to December, accumulatively increase crude oil supply by 2 million b / d by the end of this year, and extend this round of production reduction agreement until the end of 2022.

The proposal to increase production by a small margin was agreed by all oil-producing countries except the United Arab Emirates. The UAE said it was willing to increase production, but refused to extend the production reduction agreement until the end of 2022 and proposed that its production reduction baseline should be raised to 3.8 million barrels per day if it had to be extended to the end of 2022. Under the current agreement, the production reduction benchmark for measuring UAE production is 3.168 million b / d, but the country claims that its actual capacity is close to 4 million b / d.

In April last year, oil production in the United Arab Emirates was close to 3.85 million barrels a day, according to Argus, an energy consultancy.

Saudi Arabia is firmly opposed to this, citing fears that more oil-producing countries will follow the example of the United Arab Emirates, leading to the complete invalidation of the production reduction agreement.

There is no news as to when OPEC + will resume negotiations. It is clear that Saudi Arabia and Russia need more time to study the UAE's position in order to come up with a response, so it is difficult to determine the time of the next regular meeting of production cuts. In fact, the adjustment of production reduction baselines will lead to more complex and lengthy negotiations, and most oil-producing countries within OPEC + are likely to demand their own capacity benchmarks.

Oil prices are bullish and expectations are stronger

With the collapse of the "OPEC +" negotiationsInternational oil prices began to rise. Brent crude rose to $77.09 a barrel on July 5, the highest level since 2018, while WTI rose to $76.36 a barrel, according to data compiled by CNBC News. Louise Dickson, an analyst at Restad Energy, said that the "OPEC +" production cut will be cancelled, making it difficult for the market to predict crude oil supply in the second half of the year, and oil prices rose immediately.

Brent crude continued to rise on July 6, hitting $77.84 a barrel to close at $74.53, while WTI crude hit its highest intraday level since November 2014 to close at $73.37.

It is generally believed that the current Brent crude oil price and WTI crude oil price are basically maintained in the range of 75 US dollars per barrel, but in view of the failure of the new stage of OPEC + production reduction negotiations, the oil market is expected to tighten in the second half of the year.

Since the beginning of the year, the COVID-19 epidemic in some countries and regions around the world has been alleviated, coupled with the acceleration of vaccination, most countries and regions have reopened, and international oil demand has gradually begun to recover. TD Securities pointed out that in the absence of a significant increase in production, the upcoming demand growth will cause the oil market to tighten faster than expected.

In fact, most investment banks believe that oil prices will continue to rise. Among them, Goldman Sachs expects oil prices to reach 80 US dollars per barrel in the short term.Bank of America predicts that oil prices will return to $100 a barrel in 2022.。

The production reduction alliance is teetering.

Although the current "OPEC +" differences are difficult to adjust, it is generally believed in the industry that the production reduction alliance may eventually meet each other half way and reach an appropriate plan to increase production without delay.

The differences between Saudi Arabia and the United Arab Emirates over the future of the oil market and the current production restriction agreement are likely to extend within Opec, complicating the situation. It is reported that the United Arab Emirates also had the idea of quitting after Qatar withdrew from OPEC. This indirectly exposed the growing differences between the two countries in recent years.

Saudi Arabia tends to maintain appropriate spare crude capacity and act as a mediating buffer in the global crude oil market, while the United Arab Emirates is scrambling to increase oil and gas production and maximize the use of its own resources, which has invested billions of dollars. Sultan Al Jaber, chief executive of Abu Dhabi National Oil Company, has said publicly: "We will not miss any opportunity to continue to press ahead with exploration plans, identify proven reserves, and then increase overall production capacity."

The market warns that if the basic agreement of "OPEC +" breaks downThe production reduction alliance will be disbanded quickly.At that time, oil-producing countries will no longer be subject to any restrictions on production reduction, the supply of crude oil on the market may increase frantically, and oil prices may return to rock bottom as a result.

Based on current production levels and growing demand, the global oil shortage will exceed 2 million barrels a day, which means that oil inventories are declining at an accelerated pace, and oil prices may rise as the economy rebounds and energy demand rises.

Stocks in Cushing, Oklahoma, an important delivery place of crude oil futures in the United States, fell from nearly 60 million barrels a week at the beginning of the year to more than 40 million barrels in June. During the peak of the epidemic last year, the oil tank used to store crude oil in Cushing was full, but now there is more storage space. It is expected that 1.45 million barrels of storage space will be available for rental in July, and the monthly rent has also dropped to 12 US dollars per barrel from 0.60 US dollars per barrel at the peak of the epidemic last year.