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The production reduction agreement faced doubts again overnight on Monday (January), while international crude oil prices also fell from their high point to near the mark. The agency said that the production reduction agreement actually proved to be in vain.
Two years ago, it was decided not to reduce production. Saudi Energy Minister al-Naimi at the time declared that production cuts were not in the interest of member states regardless of price.
As we all know, the economic conditions of member countries have not been good in the past two years. In the press release, it was stated that the current market conditions threaten the economies of oil-producing countries. So they have no choice but to cut production to help push up oil prices.
The current agreement shows that Saudi Arabia is no longer an unfettered oil producer and no longer has the ability to balance the world's oil supply.
What is the point of treating monthly output as a reduction?
Output in March hit a record high. Some key non-states are expected to cut production by 10,000 barrels per day, half of which comes from Russia. But Russia's monthly output also hit a record high. Therefore, what was actually reached was not so much an agreement to reduce production as it was an agreement to freeze production.
The main driver of market sentiment should be facts, not fear, concern and investor concerns about perceived risk. But because the oil market is not a transparent, free and efficient market, investor expectations will continue to add additional pressure to oil prices.
Just take a look at the oil market data, especially the monthly data and you will understand what I am talking about. There are a lot of problems with oil statistics. Data on spare capacity, output, consumption and inventories are often estimates or guesses, especially for most non-states.
Even it does not trust the production figures reported by its member countries, which is why secondary data sources are used to monitor the market. But no one asked where the data from these secondary sources came from. In an environment where no one can verify and prove true output, deception will flourish. This means that for the successful implementation of the production reduction agreement, whether countries faithfully fulfill their commitments will be crucial.
A committee composed of representatives from Kuwait, Venezuela, Algeria and two non-member countries will monitor output levels. But would love to know how this committee monitors output. Judging from past experience, deception has been a common feature of production reduction decisions. I don't think this time will be the exception.
This assumption brings up a very critical issue for the oil market.
It should be pointed out that what is reduced is world oil output, not world oil trade volume. In other words, what should be talked about is the export volume of oil-producing countries, not the oil production volume. But no one seems to care.