How Inventories and OPEC Production Are Affecting Crude Prices
Crude oil prices
February WTI (West Texas Intermediate) crude oil (PXI) (USL) (IEZ) (IXC) (ERY) (IYE) futures contracts rose 0.9% and settled at $53.8 per barrel on January 5, 2017. Brent crude oil futures also rose 0.8% and closed at $56.8 per barrel on January 5, 2017. US crude oil prices had the highest settlement in 18 months on December 28, 2016.
Crude oil prices rose due to a bullish crude oil inventory report. Prices also rose due to optimism that the major oil producers will comply with the production cut deal. ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) follow crude oil futures contracts. These ETFs rose 1% and 1.8%, respectively, on January 5, 2017.
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Major oil producers’ production plans
OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers agreed to cut crude oil production by 1.8 MMbpd (million barrels per day) starting in January 2017. Consequently, crude oil (BNO) (RYE) (PXI) (XOP) (USL) (ERX) has risen 23% between November 15 and January 5, 2017. A Reuters survey estimates that OPEC crude oil production fell by 200,000 bpd to 34.2 MMbpd in December 2016 compared to the previous month. Falling production supports oil prices. However, the level is still 1.7 MMbpd higher than OPEC’s production target of 32.5 MMbpd from January 2017.
On January 5, 2017, Saudi Arabia stated that it would cut crude oil production in January by at least 486,000 bpd (barrels a day) to 10.1 MMbpd (million barrels a day). This supported crude oil prices. For more, read Will Major Oil Producers Comply with Output Cut Plan? and Will Saudi Arabia’s Ambitious Plan Impact Crude Oil Prices?
US crude oil inventories
The EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report on January 5, 2017. It reported that US crude oil inventories fell by 7.1 MMbbls between December 23 and December 30, 2016. We’ll look at US crude oil inventories and their regional breakdown in part two of this series.
Earlier, the API (American Petroleum Institute) estimated that US crude oil inventories fell by 7.4 MMbbls between December 23 and December 30, 2016. However, the API added that Cushing crude oil inventories rose 0.5 MMbbls. Read Large Cushing Inventory Build Could Limit Upside for Crude Prices to learn more.
Moves in crude oil prices can impact the earnings of oil and gas producers like ExxonMobil (XOM), Chevron (CVX), SM Energy (SM), Denbury Resources (DNR), ConocoPhillips (COP), and Sanchez Energy (SN).
In this series, we’ll look at US crude oil production, refinery demand, imports, and inventories. We’ll also look at gasoline inventories.
We’ll start by looking at US crude oil prices in early morning trade on January 6, 2017.