Why OPEC’s Crude Oil Production Rose in January

Crude oil futures 

March WTI crude oil futures (USO) (UWT) contracts rose 0.11% to $64.80 per barrel at 1:15 AM EST on February 1, 2018. Prices rose due to OPEC’s higher compliance with the production cuts in January 2018. Prices are near a three-year high, which benefits the Energy Select Sector SPDR ETF (XLE). XLE has exposure to energy companies.

March E-mini S&P 500 (SPY) futures contracts rose 0.33% to 2,834.75 at 1:15 AM EST on February 1, 2018.

Why OPEC’s Crude Oil Production Rose in January

OPEC’s crude oil production

A Reuters survey showed that OPEC’s crude oil production increased by 100,000 bpd (barrels per day) to 32.4 MMbpd (million barrels per day) in January 2018—compared to December 2017. Production increased due to the rise in production from Nigeria, Saudi Arabia, and Libya. In contrast, Iraq and Venezuela had a major drop in production in January 2018.

OPEC’s compliance with the ongoing production cuts was at 138% in January 2018 and 137% in December 2017, respectively. Higher compliance supports oil (BNO) (UCO) prices. Higher oil prices benefit energy companies (RYE) (IYE) like Saudi Aramco, Rosneft, BP (BP), Shell (RDS.A), SM Energy (SM), and Laredo Petroleum (LPI).

Impact

Oil producers agreed to cut production by 1,800,000 bpd from January 2017 to December 2018. Crude oil (SCO) (DWT) prices have risen more than 50% since June 2017, partly due to the production cuts.

Higher compliance with pledged cuts would draw down global and US crude oil inventories and support oil (UWT) prices. Any unplanned supply outage from Libya, Nigeria, Iraq, and Venezuela could also support oil prices.

OPEC’s crude oil production target for 2018 is at 32.6 MMbpd. The current production is 0.6% less than the target.

Next, we’ll discuss US crude oil inventories.