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Is US Shale Resurgence a Risk to the Crude Oil Market?

PART:
1 2 3 4 5
Part 4
Is US Shale Resurgence a Risk to the Crude Oil Market? PART 4 OF 5

Producers’ Production Cut Deal: Will the Extension Happen?

Crude oil prices and major oil producers’ production cut deal  

Crude oil (IEZ) (RYE) (USO) (XOP) prices rose ~16% between November 15, 2016, and March 6, 2017, due to major oil producers’ production cut deal. However, crude oil prices are trading at the lowest level since November 2016 due to record US crude oil inventories and rising US crude oil production as of March 14, 2017.

Lower crude oil prices have a negative impact on crude oil and gas producers’ earnings like Synergy Resources (SYRG), Hess (HES), PDC Energy (PDCE), Continental Resources (CLR), and Sanchez Energy (SN). For more on crude oil prices, read Part 1 of the series.

Producers&#8217; Production Cut Deal: Will the Extension Happen?

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Possible extension of major oil producers’ production cut deal

Major oil producers’ production cut deal would last for six months starting in January 2017. However, the delay in rebalancing due to rising supplies from the US, Nigeria, and Iran could push OPEC to extend the production cut deal. Record OECD oil inventories were also pressuring the oil market.

Kuwait’s oil minister stated that the country would be interested in extending major oil producers’ production cut deal beyond June 2017 due to the factors mentioned above. Countries like the United Arab Emirates, Angola, and Iraq also signaled interest towards extending the deal in 2H17.

Saudi Arabia and Russia are the major contributors to the production cut deal. Saudi Arabia showed a higher commitment towards targeted production cuts in February 2017. For more on Saudi Arabia and OPEC’s production, read the previous part of the series. Saudi Arabia cut production by 700,000 bpd since November 2016. Russia showed lower compliance to major producers’ production cut deal in February 2017. It’s expected to reduce production in the coming months.

OPEC will decide whether or not to extend major oil producers’ production cut deal at its meeting on May 25, 2017. If OPEC extends the deal, then Saudi Arabia and Russia will have to bear most of the production cuts.

In contrast, some traders think that the recent surge in US production might push some OPEC members to abandon major producers’ production cut deal after June 2017, which could lead to collateral damage in crude oil prices.

Next, we’ll analyze Libya’s crude oil production.

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