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Will OPEC Successfully Implement Its Production Cap Plans?

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OPEC 

On October 28, 2016 OPEC (Organization of the Petroleum Exporting Counties) officials met in Vienna to discuss on the details of capping production. However, Iran and Iraq said that they wouldn’t support OPEC capping or reducing production. Iran plans to scale production up to 4.2 MMbpd (million barrels per day). For more, read Iran’s Crude Oil Production Could Impact the Crude Oil Market. Iraq will produce more oil to fight militants.

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Traders are skeptical about OPEC‘s plan to cap production. As a result, it pressured prices on October 28, 2016. For more on prices, read Part 1 and Part 3 of this series. On September 28, 2016, in their meeting in Algeria, OPEC producers reportedly reached an unofficial agreement to cap production. OPEC announced a reduction in crude oil production by up to 700,000 barrels per day.

For more information, read Crude Oil Prices and Oil Producers’ Meeting in Istanbul and Decoding the Major Oil Producers’ Meeting in Algeria.

OPEC meeting in November 2016 

An OPEC meeting is scheduled for November 30, 2016, in Vienna. The meeting could provide details about the quota system for OPEC members. However, difficulty in monitoring OPEC and Russian crude oil production will be a key challenge.

OPEC didn’t cap its production at its meeting on June 2, 2016. The failure of the Doha meeting on April 17, 2016, also put a lid on crude oil prices. Read Hopes for Oil Producer Meeting Boosted Prices for Last 2 Months and Why Did the Doha Oil Producer Meeting Fail? to learn more. Read How Did Crude Oil Prices React to the Last 3 OPEC Meetings? for more on the meetings.

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Impact on oil producers 

If OPEC and Russia reduce crude oil production in the coming months, it could push crude oil prices higher. Read Iran, Nigeria, and Libya Could Undo OPEC’s Historic Deal, Will Saudi Arabia’s Crude Oil Production Strategy Work?, and What Will Happen if the Oil Producer Meeting Succeeds? to learn more.

Impact on oil stocks and ETFs 

Uncertainty around the OPEC meetings increased the volatility in the crude oil market. The rollercoaster ride in crude oil and natural gas prices can impact oil and gas producers’ profitability such as Comstock Resources (CRK), Northern Oil & Gas (NOG), Range Resources (RRC), Denbury Resources (DNR), WPX Energy (WPX), and Goodrich Petroleum (GDP).

The ups and downs in crude oil prices also impact funds such as the Vanguard Energy ETF (VDE), the Direxion Daily Energy Bear 3x ETF (ERY), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares DB Crude Oil Double Short ETN (DTO), the ProShares UltraShort Bloomberg Crude Oil (SCO), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).

In the next part of the series, we’ll look at Cushing crude oil inventories.

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