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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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    Today... OPEC+ discusses in Riyadh whether or not to extend the production cut

    Rocky
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    Today... OPEC+ discusses in Riyadh whether or not to extend the production cut Empty Today... OPEC+ discusses in Riyadh whether or not to extend the production cut

    Post by Rocky Sun 02 Jun 2024, 4:46 am

    Today... OPEC+ discusses in Riyadh whether or not to extend the production cut
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    Baghdad today - follow-up
    Today, Sunday (June 2, 2024), an OPEC+ alliance meeting will be held in Riyadh to discuss oil production policy, while experts expected that the alliance would discuss an agreement that might extend the deadline for oil production cuts until 2025.
    What are the cuts under consultation to maintain them, and the time frame for extending them, or canceling them - which is a very weak option according to experts? What factors play a role in decision making? What is the most likely scenario?
    What discounts are we talking about?
    Javier Blas, an oil writer at Bloomberg, explains in an article published on Wednesday that OPEC+ is currently adopting a mix of production cuts. The first type is the main or “official” reduction and includes most coalition members. In addition, there are two “voluntary” or “voluntary” reductions that include a group of countries approximately one-third of the coalition members. There is also a reduction known as “compensatory” that affects a limited number of countries that have not made official cuts, in addition to another type of “compensatory” cuts that affects a second group of member states that have not made voluntary cuts in production.
    The OPEC+ alliance began reducing production in November 2022 due to weak demand, especially from China, after its economic growth declined due to the Corona pandemic. Then, in July 2023, eight countries in the coalition donated a voluntary reduction, most of which was borne by Saudi Arabia, which reduced its production by about one million barrels per day, while Russia, the second largest producer in the OPEC+ alliance, reduced its production by about 400 thousand barrels per day. Last March, the total reductions by the coalition countries amounted to about 5.9 million barrels per day.
    As for the reduction previously agreed upon by all 22 OPEC+ countries, amounting to 3.66 million barrels per day, it remains and was extended at the coalition meeting last November until the end of this year.
    At today's meeting, the coalition will consider the possibility of extending or not extending 2.2 million barrels per day, which is a voluntary reduction by only 8 countries in the coalition, as this reduction ends at the end of this month of June. Therefore, the main focus of the Riyadh meeting is to decide whether this voluntary reduction will be extended? The duration of this extension, if it occurs, will it be for three months or until the end of 2024?
    Factors extending production cuts
    Several data play a role in making it likely that the OPEC+ alliance will take a decision to extend the voluntary reduction for another three months or even six months. These factors are as follows:
    1- Oil prices are low and have been fluctuating around $80 per barrel for Brent recently.
    2- Demand from China is still weak, and has not yet approached the limits before the Corona pandemic.
    3- Increased production by countries outside the coalition, especially the United States of America, Canada and Brazil, which leads to an increase in the supply of oil.
    4- Many markets, especially the major Western industrial countries, are still suffering from inflation, which is expected to continue until the end of the year. This reality directly affects the demand for oil.
    5- Countries in the OPEC+ alliance, such as Saudi Arabia and the UAE, have surplus production capacity of up to 6 million barrels per day.
    6- Oil prices are currently close to comfortable levels for both producers and consumers. So why make a dramatic change?
     Prices and market psychology
    It is natural for the coalition to take into account that the prices of Brent and Texas Intermediate crude oil rose to $90 and $87 per barrel, respectively, at the beginning of April, only to return and fall to $81 and $77 per barrel currently, respectively.
    The reason for the decline, according to most analysts, is due to the state of uncertainty that characterizes the global economy, especially in China, in addition to the geopolitical events that the world is going through in the region, and their effects on the movement of trade, as well as the rise in oil production by producing countries outside the OPEC+ alliance. The transition to renewable energy pursued by many countries, especially in Europe, also has impacts on the demand for fossil fuels.
    In the opinion of Javier Blas, “OPEC+ officials realize that fundamentals, i.e. supply, demand, and inventories, are the pivotal factors for price movement, but market psychology is equally important. In times of increasing uncertainty, as is the case today, sentiment can overshadow data.”
    All market data, as well as the expectations of most oil analysts and oil-specialized publications, suggest that OPEC+ will extend the voluntary cut at its meeting. But will the extension be for three months or until the end of the year? Will the coalition surprise the market by approving an agreement that is being finalized to extend some production cuts until 2025, as Bloomberg reported from delegates from member states? These are the questions he looks forward to getting answered at the end of today's trading.
    Source: Agencies
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