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OPEC Extended the Output Cut Deal: Stable Crude Oil Prices?

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OPEC Extended the Output Cut Deal: Stable Crude Oil Prices? PART 1 OF 5

OPEC Extended the Output Cut Deal, S&P 500 Hit a Record

US crude oil prices  

WTI (West Texas Intermediate) crude oil (IEZ) (USO) (VDE) futures contracts for July delivery rose 1.8% and closed at $49.8 per barrel on May 26, 2017. US crude oil prices fell 2.6% for the week ending May 26, 2017.

OPEC Extended the Output Cut Deal, S&#038;P 500 Hit a Record

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OPEC’s meeting 

On May 25, 2017, OPEC (Organization of the Petroleum Exporting Countries) held its meeting in Vienna. Brent and WTI crude oil prices fell almost 5% after OPEC’s meeting on May 25.

Key takeaways of OPEC’s meeting are:

  • OPEC and non-OPEC producers agreed to cut production cut by 1.8 MMbpd (million barrels per day) from July 2017 to March 2018—2% of global crude oil production.
  • Libya and Nigeria have been exempt from the output cut deal.
  • OPEC aimed to reduce global crude oil inventories from 3 billion barrels to 2.7 billion barrels in 2017.

The objective of OPEC’s deal is to remove excess oil from the market. Some traders anticipated deeper or longer cuts from oil producers. The output cut deal led to a massive sell-off in oil (XLE) (XOP) futures on May 25, 2017. Oil and gas producers like Chesapeake Energy (CHK) and Marathon Oil (MRO) fell more than 5% on May 25, 2017. Lower oil prices have a negative impact on oil producers like Warren Resources (WRES) and QEP Resources (QEP).

S&P 500 hit a record 

The S&P 500 (SPY) (SPX-INDEX) rose 0.1% to 2,415.8 on May 26, 2017—the highest level ever. The S&P 500 rose due to a rise in the consumer discretionary sector on May 26. 2017. The energy sector accounts for ~6.3% of SPY as of May 26, 2017. The energy sector rose 0.1% on May 26, 2017.

In the next part, we’ll look at the US dollar and how it impacts crude oil prices.

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