2020-04-20 • Updated
Today, we are expecting decisions made about the global oil supply cut by the OPEC, the US, and Russia. Hence, it makes sense to throw a quick look at the OPEC in the context of the global oil market.
OPEC is a cartel consisting of oil-exporting countries: it defends the interests of those countries as they are mostly living on crude export profits. Currently, there are 13 countries. Geographically, most of them are located in the Middle East. Production-wise, the biggest outputs are also represented by that region, headed by Saudi Arabia.
OPEC takes 80% of proven oil reserves globally. Although Venezuela takes the first place, its external political and internal social-economic status will keep its reserves underground in the nearest future. For this reason, Saudi Arabia is a factual #1 in terms of reserves, capacities, and it’s a true leader of the OPEC at the moment.
In terms of the exports, the below map shows the relative strength of the cartel. Countries marked in green are those which are in the OPEC, and numbers correspond to the reported 2018 total oil exports of each state if it was more than 1mln bpd.
Source: OPEC
As you can see, the concentration of numbers in the Middle East and their relative weight in the total sum of the biggest oil producers leaves little doubt: the OPEC has a firm grip on the oil market. While the only few countries which may counter what Saudi Arabia says are the US and Russia (Canadian exports are all consumed by the US, Iraq is normally following suit with the KSA).
That’s why what will be agreed today at 15:00 MT time will define the oil market in the nearest future. Traditionally, OPEC’s meetings have been held in the Austrian capital city, but as the situation demands, it has to be done remotely. WTI already surged to $27 in hopes of positive outcomes of the meeting.
If the market doesn’t get disappointed and witnesses 10% of global oil supply sealed, oil prices will shoot up. Otherwise, they are likely to plunge in expectation for big troubles ahead.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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