Russia, Saudi Arabia, Venezuela, and Qatar Entered into a Deal



Crude oil market’s bigger picture

Russia, Saudi Arabia, Venezuela, and Qatar decided to freeze crude oil production at January 2016 levels. We discussed this in the last part of the series. In contrast, Saudi Arabia has always been keen on defending the market share. It resisted the collective production cut strategy. However, after inking the historic deal, Saudi Arabia’s Oil Minister Ali Al-Naimi hinted that this was the beginning of a bigger deal in the months to come until US shale oil producers shut down. Read how Iran could add value to the deal in Part 4 of this series. In Part 3, we’ll also discuss how the American Petroleum Institute crude oil inventory data and Cushing stocks could impact oil prices.

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Crude oil price volatility

Saudi Arabia is increasing its allies and buying time by inking this historic deal to kill US shale oil producers. Crude oil prices fell for the seventh time in the last ten trading sessions. Prices fell more than 70% in the last 20 months due to oversupply concerns and record production from Russia to Saudi Arabia. Read more about the Crude Oil Volatility Index later in this series. Historically low oil prices impact US shale oil producers like Apache (APA), Laredo Petroleum (LPI), Whiting Petroleum (WLL), ConocoPhillips (COP), EOG Resources (EOG), and Ultra Petroleum (UPL) the most. US oil producers have the highest break-even costs and production costs. For more on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.

Qatar’s energy minister reported that it would be monitoring these countries’ crude oil production levels. To learn more about the latest developments in Iran and Iraq, read Part 4 and Part 5 of this series.

Gasoline prices 

Gasoline prices fell by 6.7% and closed at $0.97 per gallon in yesterday’s trade. To learn more, read How Do Crude Oil, Gasoline, and Diesel Prices Mirror Each Other? and Vicious Circle: Gasoline and Diesel Prices Impact Refinery Demand.

The ups and downs in oil prices impact oil and gas ETFs and ETNs like the VelocityShares 3X Inverse Crude Oil ETN (DWTI), the Vanguard Energy ETF (VDE), and the iShares U.S. Energy (IYE).


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