The OPEC-Russia Meeting: Bullish or Bearish for Crude Oil Market?
On October 21, 2016, Russian energy minister Alexander Novak said that production cap plans would help rebalance the crude oil market. He also showed interest in joining hands with OPEC (Organization of the Petroleum Exporting Counties) to cap crude oil production.
His comments supported crude oil prices on October 21. For more on crude oil prices, read Part 1 of this series. However, traders are skeptical about OPEC‘s plan to cap production.
Novak met Saudi Arabian and other regional oil producers at the Gulf Cooperation Council conference in Riyadh on October 23, 2016. They have come to an unofficial agreement to cap production.
On September 28, 2016, in their meeting in Algeria, OPEC producers reportedly reached an unofficial agreement to cap production. It announced a reduction in crude oil production by up to 700,000 barrels per day. For more information, read Crude Oil Prices and Oil Producers’ Meeting in Istanbul and Decoding the Major Oil Producers’ Meeting in Algeria.
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OPEC meeting in November 2016
An OPEC meeting is scheduled for November 30, 2016, in Vienna. The meeting could provide details of the quota system for OPEC members. However, difficulty in monitoring OPEC and Russian crude oil production will be a key challenge.
OPEC didn’t cap its production at its meeting on June 2, 2016. The failure of the Doha meeting on April 17, 2016, also put a lid on crude oil prices. Read Hopes for Oil Producer Meeting Boosted Prices for Last 2 Months and Why Did the Doha Oil Producer Meeting Fail? to learn more. Read How Did Crude Oil Prices React to the Last 3 OPEC Meetings? for more on the meetings.
Impact on oil producers
If OPEC and Russia reduce crude oil production in the coming months, it could push crude oil prices higher. Read Iran, Nigeria, and Libya Could Undo OPEC’s Historic Deal, Will Saudi Arabia’s Crude Oil Production Strategy Work?, Iran’s Crude Oil Production Could Impact the Crude Oil Market, and What Will Happen if the Oil Producer Meeting Succeeds? to learn more.
Impact on oil stocks and ETFs
Uncertainty around the OPEC meetings has increased the volatility in the crude oil market. The ups and downs in crude oil prices can impact the profitability of oil and gas producers such as Comstock Resources (CRK), Northern Oil & Gas (NOG), Range Resources (RRC), Synergy Resources (SYRG), and Goodrich Petroleum (GDP).
Volatility also impacts funds such as the Vanguard Energy ETF (VDE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares US Oil Equipment & Services (IEZ), the iShares Global Energy (IXC), the iShares DB Crude Oil Double Short ETN (DTO), the ProShares UltraShort Bloomberg Crude Oil (SCO), the Direxion Daily Energy Bear 3x ETF (ERY), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).
In the next part of the series, we’ll look at Cushing crude oil inventories.