Could Major Oil Producers’ Production Cut Extend to 2H17?
Crude oil prices and major oil producers’ output cut plans
Crude oil (USO) (UCO) (USL) (IXC) (ERY) prices rose ~18% between November 15, 2016, and December 28, 2016, due to the expectation that major oil producers’ production cuts would curb oversupply in the market.
- OPEC (Organization of the Petroleum Exporting Countries) agreed to reduce crude oil production by 1.2 MMbpd (million barrels per day) to ~32.5 MMbpd in January 2017. OPEC’s crude oil production fell by 690,000 bpd (barrels per day) to 32.27 MMbpd in January 2017—compared to the previous month.
- Non-OPEC producers agreed to reduce crude oil production by 0.6 MMbpd in January 2017. Russia’s crude oil production fell in January 2017.
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However, crude oil prices have fallen ~4% in February despite the fall in crude oil production from OPEC and Russia in January. For more crude oil prices and its drivers, read Part 1 of this series. A rise in production from Iran in January 2017 also pressured oil prices.
On February 7, 2017, Iran’s oil minister said that major oil producers should extend the oil production cut deal in 2H17. The production cut would curb oversupply in the oil market and support crude oil (BNO) (XLE) (ERY) (ERX) prices. Higher crude oil prices have a positive impact on oil and gas producers’ earnings like Marathon Oil (MRO), Warren Resources (WRES), Hess (HES), and PDC Energy (PDCE).
Saudi Arabia and major oil producers output cut plans
In January 2017, Saudi Arabia’s energy minister said that OPEC might not extend the production cut deal beyond six months. He thinks that the oil market’s rebalancing will end by 1H17.
In the next part of the series, we’ll analyze whether or not major oil producers’ production cut plan will fail.