Freezing crude oil production
On April 17, 2016, major oil producers failed to enter an agreement to freeze crude oil production. Saudi Arabia, one of the top exporters of crude oil wanted Iran to agree to the deal. However, Iran withdrew from the meeting at the last minute. On April 17, Qatar’s oil minister stated that major producers required more time for a constructive result. He also added that oil prices are better than they were two months ago, which gave them an opportunity to take more time.
Major oil producers’ strategy
Oil producers from Iran to Saudi Arabia want to increase their market share. However, they also need oil prices to be high enough for sufficient profits. So, Russia and Saudi Arabia are producing crude oil almost at their peak levels. But, Iran also wants to regain its market share by producing crude oil at its pre-sanction levels. That’s why Iran isn’t interested in the crude oil production deal.
Secondly, oil producers are struggling with their budgets, so they need to produce more. For more detail, read How Are Oil Prices Squeezing OPEC Members’ Budgets? and Russia’s Debt Reaches $100 Billion with Oil Market Turmoil.
Impact on oil prices, companies, and ETFs
The oil producer meeting was one of the major factors driving crude oil prices higher by 50% since the lows of February 2016. To learn more about the bullish factors, read How Long Can Bullish Catalysts Benefit Crude Oil Prices in 2016? and How Are Brazil and India Affecting the Crude Oil Market? The optimism surrounding the oil producer meeting propped up oil prices despite a lack of major changes in the crude oil fundamentals.
The failure of the oil producer meeting on April 17 turns the focus towards the OPEC cartels meeting in June. Some experts suggest that this will lead to pessimistic sentiments and the extension of the oil bear market. Oil prices could fall in the near term.
Lower oil prices impact Middle East oil producers like National Iranian Oil Company and Kuwait Petroleum Company. They also impact US producers like Triangle Petroleum (TPLM), Energy XXI (EXXI), Goodrich Petroleum (GDP), and Range Resources (RRC).
Plus, the volatility in oil prices affects ETFs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO), the DB Crude Oil Double Short ETN (DTO), the iShares U.S. Oil Equipment & Services ETF (IEZ), and the Direxion Daily Energy Bear 3x (ERY).
In the next part of the series, we’ll cover Cushing crude oil inventory.