Crude oil prices
October WTI (West Texas Intermediate) crude oil futures contracts were up by 1% to $45.31 per barrel in electronic trade at 5:15 AM EST on September 7, 2016. Prices extended the rally from the previous day. For more on crude oil prices, read part one of this series.
Oil producer meeting
On September 5, 2016, Saudi Arabia and Russia announced that they will work together to support and stabilize the oil market. This boosted crude oil prices on September 5, 2016. For more, read Saudi Arabia, Russia, and the US Impact the Crude Oil Market.
Consequences of a successful oil producer meeting
The success of the oil producer meeting, which aims to freeze oil output for major producers, could mean higher crude oil prices. For more on crude oil price forecasts, read Oil Producers’ Meeting and Crude Oil Price Forecasts. High crude oil prices will lead to the following consequences:
- US crude oil producers will increase their production activity. This could lead to a loss of market share by Saudi Arabia and other Middle East operators. For more information, read How the US Could Be the Next Saudi Arabia of the Crude Oil Market and US Crude Oil Production Hinges on Rig Counts.
- Iran will benefit from higher oil prices, which will help Iran’s oil production expansion activity. Iran will increase its market share in Asia. This will pressure Saudi Arabia and Russia. Saudi Arabia and Russia are major exporters to China, Japan, India, and South Korea.
- Middle East countries and Russia are dependent on oil export revenue for economic growth. However, high oil prices in the current energy market scenario will lead to a rise in production from non-OPEC (Organization of the Petroleum Exporting Countries) producers like Canada, Brazil, Mexico, and China. This will pressure global oil prices and increase competition for supplies, which will impact revenues of large producers like Saudi Arabia and Russia.
All these factors undercut the likelihood of success of the oil producer meeting. For more information, read Oil Producers’ Meeting: Will Failure Pressure Crude Oil Prices?
Impact on stocks and ETFs
US crude oil prices are up by 6% so far in September 2016 partially due to the speculation about the oil producer meeting. Higher crude oil prices have a positive impact on the earnings of oil producers like Warren Resources (WRES), Triangle Petroleum (TPLM), and QEP Resources (QEP).
Volatility in crude oil prices also impacts ETFs and ETNs like the iShares Global Energy ETF (IXC), the DB Crude Oil Double Short ETN (DTO), the iShares U.S. Oil Equipment & Services ETF (IEZ), the Fidelity MSCI Energy (FENY), and the Direxion Daily Energy Bear 3x (ERY).
In the next part, we’ll discuss the American Petroleum Institute’s crude oil inventories.