Russia and OPEC on the Same Page to Extend Output Cut Deal

Crude oil prices  

June WTI (West Texas Intermediate) crude oil (XLE) (XOP) (USO) futures contracts rose 0.02% and closed at $47.84 per barrel on May 12, 2017. In contrast, the S&P 500 (SPY) (SPX-INDEX) fell 0.15% to 2,390.9 on May 12, 2017.

Russia and OPEC on the Same Page to Extend Output Cut Deal

Major oil producer deal 

US crude oil prices rose ~4.2% in the week ending May 12, 2017, due to the expectation of an extension of major producers’ production cut deal beyond 2017. The rise was also supported by the massive draw in US crude oil inventories for the week ending May 5, 2017.

On May 15, 2017, Saudi Arabia’s and Russia’s energy ministers said that the country would extend the major producers’ production cut deal for nine more months. The extension would start from July 2017 and could end by March 2018. The deal could cut production by 1.2 MMbpd from OPEC and 0.6 MMbpd from non-OPEC producers. As a result, WTI and Brent crude oil prices jumped during electronic trade on Monday, May 15, 2017.

The OPEC meeting is scheduled on May 25, 2017, which could result in an official extension of major producers’ production cut deal. However, crude oil prices are near a five-month low due to near record US crude oil inventories and the rise in US crude oil production. As a result, oil prices are down ~14% year-to-date (or YTD). Lower crude oil (VDE) (BNO) prices have a negative impact on the earnings of oil and gas exploration and production companies like ExxonMobil (XOM), Northern Oil & Gas (NOG), Chevron (CVX), and Triangle Petroleum (TPLM).

Meanwhile, Libya, Nigeria, and Brazil are scaling up production. The rise in production from these countries could offset the production cut from major producers’ production cut deal.

What’s in this series? 

In this series, we’ll look at the energy calendar, US crude oil’s highs and lows in the last 15 months, Cushing crude oil inventories, the US crude oil rig count, and some crude oil price forecasts.

In the next part, we’ll look at the US dollar and how it impacts crude oil prices.