"Vienna Union" becomes a new force in the oil market
Russia and other non-OPEC countries have participated in the OPEC ministerial meeting of the OPEC and non-OPEC oil-producing countries on several occasions, and have formed a "Vienna Union" with OPEC's major oil-producing countries. In recent years, this "Vienna Union", which is headed by Saudi Arabia, OPEC countries and non-OPEC countries headed by Russia to reach an agreement to reduce production, has increased its influence. At the Cambridge Energy Week held in Houston in the United States in March this year, the "Vienna Union" was called by the industry.
The “Vienna Union” has its intrinsic vitality, which is an effective complement to the existing international oil cooperation mechanism and global energy governance. The sharp fall in this round of international oil prices that began in the second half of 2014 has spawned a new international oil cooperation mechanism. The OPEC countries headed by Saudi Arabia and the non-OPEC countries headed by Russia have controlled the world through joint production cuts. The "spread" of oil production, so as to achieve the purpose of stabilizing oil prices.
In the face of the oil market's winter, Saudi Arabia and Russia can be described as hitting one another. During the G20 summit held in Hangzhou, China in October 2016, the heads of state of the two countries reached a consensus on joint production cuts. In January 2017, the production cut-off agreement took effect. The OPEC countries reduced production by 1.2 million barrels per day, Non-OPEC countries reduced production by 600,000 barrels per day, and the combined production cuts by 1.8 million barrels per day. The international oil market began to warm up, and the oil price entered a steady and steady recovery channel. In November 2017, Saudi Arabia and Russia once again reached an agreement to extend the contract for the reduction of production by one year to the end of 2018.
Both parties have tasted the sweetness from the production cuts agreement. In March of this year, Saudi Arabian ambassador Mohammad bin Salman stated that Saudi Arabia and Russia are considering signing a long-term crude oil production cut-off agreement with a term of 10 to 20 years to achieve the goal of regulating global crude oil supply and stabilizing crude oil prices. If the long-term agreement is successfully signed, the short-term “production reduction agreement” between Saudi Arabia and Russia’s OPEC and non-OPEC countries will shift to a long-term “production reduction cooperation alliance,” which will substantially change the existing international oil cooperation mechanism and global energy resources. Governance system pattern.
The OPEC congress held on June 22-23 announced the decision of OPEC to increase oil production from July 1. It changed the OPEC’s production reduction strategy, which was implemented by Saudi Arabia in recent years. Can Saudi Arabia and Russia follow this? It is envisaged that signing a long-term production reduction agreement on schedule will face greater uncertainty.
Historically, however, international oil prices have undergone cyclical and dynamic changes. In the cycle of persistently low oil prices, OPEC and non-OPEC oil-producing countries have effectively reduced oil production through alliances and alliances, with the aim of reducing supply and boosting prices. This is in itself a rational choice for the supply side, and it has strong vitality.
In the long run, the oil price range of 55-65 US dollars/barrel can guarantee the basic interests of oil-producing and consumer countries, and it is a well-received "balanced" oil price. It is expected that after OPEC officially implements a production increase plan on July 1, international oil prices will experience a turbulent downward cycle.
Comprehensive analysis and judgment in all aspects, the average price of Brent in the second half of this year and next year is expected to be around US$60/barrel. For oil consumers in the United States, China, India, and the European Union, balanced prices mean that the energy costs of economic development in their own regions can be effectively controlled, and lower-cost energy supplies are the basic requirements of major economies. For major oil-producing countries such as Russia, Saudi Arabia and Iran, high oil prices can bring more export revenues for a while, but the long-term high oil prices mean that oil will be replaced by other low-cost alternatives. For oil companies or oil service companies, a price level of around US$60/bbl can also guarantee a reasonable return on investment for oil companies and the service contract revenue that service companies should have.
In the future, when oil prices are higher than US$80/barrel, OPEC may start a “production increase mode” to lower oil prices by releasing remaining production capacity; when oil prices fall below US$60/barrel, OPEC may start a “production cut mode”. The “production reduction agreement” between OPEC and non-OPEC oil-producing countries will also be effectively implemented, which will allow the “Vienna Union” to have a basis for sustainable development.
Although OPEC has decided to start a small increase in production in the second half of the year, the "Vienna League" between OPEC and non-OPEC oil producers led by Saudi Arabia and Russia has gradually become a "regulator" for the global oil market, just like US shale oil production is currently It has become a new regulator for the global oil market and will become a new force that will influence and even determine the direction of international oil prices in the coming period.
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