Oil Market Focuses on US Crude Oil Inventories and Output Cut



Crude oil prices   

February WTI (West Texas Intermediate) crude oil (ERX) (BNO) (PXI) (USL) (ERY) futures contracts rose 0.3% and settled at $54.1 per barrel on December 28, 2016. It’s the highest settlement in 18 months. Brent crude oil futures rose 0.2% and closed at $56.22 per barrel.

Crude oil prices are up due to the expectation that major oil producers’ production cut will curb oversupply in the market. OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers agreed to reduce crude oil production by 1.8 MMbpd from January 2017 onwards.

ETFs such as the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) rose 0.2% and 0.4%, respectively, on December 28, 2016.

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Crude oil prices and major oil producers meeting  

Traders are watching whether OPEC and non-OPEC members will comply with their crude oil production cuts starting in January 2017. Crude oil production cuts from major producers will continue for six months. Production cuts might continue for another six months depending on the stability of the crude oil market. Difficulty in monitoring oil producers’ production levels will be a key challenge. For more on the OPEC and non-OPEC meeting, read Crude Oil Prices Skyrocket as OPEC Agrees to Cut ProductionHow Will OPEC’s Production Cut Impact Crude Oil Prices, and How OPEC and Non-OPEC Producers Affect Crude Oil Prices. For the latest updates, read Part 5 in this series.

US crude oil inventories 

Expectations of a bullish crude oil inventory report could support crude oil prices. The U.S. Energy Information Administration will release its weekly crude oil inventory report on December 29, 2016, at 10:30 AM EST. We’ll look at the API’s (American Petroleum Institute) estimates for US crude oil and gasoline inventories in Part 2 and Part 3 of this series.

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Impact on stocks and ETFs   

The rollercoaster ride in crude oil prices can impact oil and gas exploration and production companies’ earnings such as QEP Resources (QEP), Occidental Petroleum (OXY), Chevron (CVX), Marathon Oil (MRO), Warren Resources (WRES), and QEP Resources (QEP).

Moves in crude oil prices impact ETFs and ETNs such as the Fidelity MSCI Energy ETF (FENY), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the SPDR S&P Oil & Gas Equipment & Services ETF (XES).

What’s in this series?   

In this series, we’ll discuss the API’s crude oil and gasoline inventories, gasoline demand, major oil producers’ production cut plans, and India’s crude oil imports and demand.

Let’s start with US crude oil prices in early morning trade on December 29, 2016.


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