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How Harvey, OPEC, and US Rigs Are Driving Crude Oil Futures

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How Harvey, OPEC, and US Rigs Are Driving Crude Oil Futures PART 1 OF 6

Will OPEC and Russia Extend Their Production Cut Deal?

US crude oil futures 

US benchmark WTI (West Texas Intermediate) crude oil (DBO)(OIH)(FXN) futures contracts for October delivery fell 2.7% to $46.57 per barrel on August 28.

Tropical Storm Harvey led to massive flooding in Texas on August 26 and the shutdown of major refineries. The storm could lead to a drop in crude oil refinery demand in the short term. An expectation of weak demand pressured crude oil prices on August 28. Prices are near a five-week low.

Will OPEC and Russia Extend Their Production Cut Deal?

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Crude oil futures and oil ETFs  

US crude futures fell for the fourth consecutive week. Prices have fallen 18% YTD (year-to-date). The YTD returns of the top five crude oil ETFs, ranked by assets under management, follow.

  • The United States Oil ETF (USO) has fallen 18.7% YTD.
  • The ProShares Ultra Bloomberg Crude Oil (UCO) has fallen 36% YTD.
  • The iPath S&P GSCI Crude Oil Total Return ETN (OIL) has fallen 23.6% YTD.
  • The VelocityShares 3x Long Crude Oil ETN (UWT) has fallen 53.4% YTD.
  • The PowerShares DB Oil ETF (DBO) has fallen 16.3% YTD.

WTI and Brent Crude oil futures’ weekly performance

WTI and Brent crude futures fell ~1.3% and 0.6% last week despite the expectation of higher compliance with OPEC’s production cut deal in August 2017 by OPEC. 

OPEC and Russia

OPEC and non-OPEC producers agreed to cut crude oil production by 1.8 MM bpd from January 2017 to March 2018. The production cut agreements took place at OPEC’s meetings on May 25, 2017, and November 30, 2016.

Saudi Arabia and Russia are planning to extend the production cut deal for three more months until June 2018. According to the Wall street Journal, Saudi Arabian and Russian energy ministers planned for this extension in an OPEC and non-OPEC monitoring committee meeting held on July 24, 2017.

If the production cut deal expires in March 2018, we could see an oil glut in 2018. The next OPEC meeting is scheduled for November 30, 2017.

Series overview 

In this series, we’ll look at Tropical Storm Harvey’s impact on gasoline prices, the US dollar, crude oil performance in the last 18 months, Cushing crude oil inventories, and the US crude oil rig count.

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