Crude oil prices and major producers’ output cut meetings
Brent and West Texas Intermediate crude oil (BNO) (PXI) (XOP) (USL) (ERX) prices rose 17.7% and 16.4% between November 25 and December 28, 2016. Crude oil prices are up due to the expectation that major oil producers’ production cut will curb oversupply in the market. For more on crude oil prices, read Part 1 of this series.
Expected output cut in January 2017
- OPEC (Organization of the Petroleum Exporting Countries) agreed to reduce crude oil production by 2 MMbpd (million barrels per day) from January 2017 onwards to ~32.5 MMbpd of crude oil from the current production. Saudi Arabia, Iraq, Kuwait, the UAE (United Arab Emirates), and Venezuela are the major producers who are expected to reduce crude oil production.
- Non-OPEC producers agreed to reduce crude oil production by 0.6 MMbpd from January 2017 onwards. Russia is expected to be the major contributor to the decline in crude oil production.
Major oil producers’ plans in 2017
In December 2016, Kuwait, the UAE, and Saudi Arabia told Asian crude oil buyers that they will cut supplies in the coming months as part of the production cut deal.
On December 28, 2016, Iraq’s oil minister said that Iraq would cut supply by 200,000 bpd–210,000 bpd (barrels per day) from January 2017 onwards. For more on Iraq, read Iraq’s Crude Oil Production Is Important for OPEC.
Venezuela said it would cut crude oil production by 95,000 bpd starting from January 2017 onwards.
Crude oil production cuts from OPEC and non-OPEC countries could reduce the crude oil oversupply and support crude oil prices in 2017. However, high crude oil prices could support the rise in crude oil production in countries such as the US and Canada in 2017. For more, read Is US Crude Oil Production the Most Important Catalyst? and How US Crude Oil Rig Count Could Affect Crude Oil Prices in 2017. The rise in production from Libya also pressures oil prices. For more, read Libya, Iran, and Nigeria Could Impact Crude Oil Prices in 2017. For more crude oil price drivers in 2017, read What Can Investors Expect in the Crude Oil Market in 2017? and Decoding the World Oil Supply and Demand Gap in 2017.
Volatility in crude oil prices could have a negative impact on oil and gas producers’ earnings such as Contango Oil & Gas (MCF), ExxonMobil (XOM), Swift Energy (SFY), Denbury Resources (DNR), and Cobalt International Energy (CIE).
Moves in crude oil and natural gas prices also impact ETFs such as the Energy Select Sector SPDR ETF (XLE), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).
In the next part of this series, we’ll analyze how India’s crude oil imports and demands impact crude oil prices.