Saudi Arabia, Russia, Kuwait, and Venezuela favored a nine-month extension of the production cut deal. OPEC’s (Organization of the Petroleum Exporting Countries) meeting will be held on May 25, 2017, in Vienna. The meeting could officially declare whether the production cut deal will be extended for six months or nine months.
The deal could remove surplus oil from the market by early 2018. OPEC’s production fell by 1.5 million barrels per day, or 4.7%, from the last meeting in November 2016. It would support crude oil prices. Crude oil (FENY) (FXN) (SCO) prices have risen more than 5% in the last six trading days because of optimism about the deal. Higher crude oil prices have a positive impact on oil and gas producers’ earnings like Hess (HES), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM).
OPEC and Russia could pressure oil prices
The production cut deal could expire by December 2017 or 1Q18. So, OPEC and Russia could ramp up their production in 2Q18. US crude oil production is expected to hit a 48-year high in 2018. All of these factors could lead to a surplus in the oil market by 2H18. It would pressure crude oil prices.
Goldman Sachs (GS) thinks that a rise in production from OPEC, Russia, and the US in 2H18 could lead to renewed oversupply by the end of 2018. Lower crude oil prices have a negative impact oil and gas producers’ earnings in the Middle East and US like Saudi Aramco, Chevron (CVX), and ExxonMobil (XOM).
Next, we’ll analyze how Libya and Nigeria’s crude oil production impacts the crude oil market.