29 May

Top 3 Crude Oil Producers Impact Oil Futures

WRITTEN BY Gordon Kristopher

Saudi Arabia and Russia 

On May 25, Saudi Arabia and Russia’s energy ministers said that the ongoing supply cuts could be eased. As a result, WTI crude oil futures dropped 4% to $67.88 per barrel on May 25.

The United States Oil ETF (USO) seeks to follow active WTI oil futures’ performance. USO fell ~4.3% to $13.7 on May 25. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) decreased ~3.3% on May 25. XOP aims to follow the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. California Resources (CRC), Ultra Petroleum (UPL), and Laredo Petroleum (LPI) account for ~5.3% of XOP’s holdings. The stocks fell ~10.6%, ~10%, and ~7.9%, respectively, on May 25. These stocks were the top percentage losses in XOP’s portfolio on May 25.

Top 3 Crude Oil Producers Impact Oil Futures

Ongoing production cuts

On November 30, 2016OPEC decided to cut the crude oil production by 1.2 MMbpd (million barrels per day) to ~32.5 MMbpd from January 2017 to June 2017. Likewise, non-OPEC producers decided to reduce the oil production by 0.6 MMbpd during the same period. As a result, WTI and Brent crude oil prices rose more than 8% on November 30, 2016.

On May 25, 2017, OPEC and non-OPEC producers agreed to cut the production by 1.8 MMbpd from July 2017 to March 2018. On November 30, 2017, OPEC and Russia prolonged the production cuts until December 2018.

Expectations 

Brent and WTI crude oil prices have risen ~71% and ~60% since June 21, 2017, partly due to the production cuts. New sanctions on Iran and Venezuela could lead to a decline in crude oil supplies. So, Saudi Arabia and Russia could slowly ease their ongoing supply cuts. According to Reuters, OPEC and non-OPEC crude oil supplies might increase by 1 MMbpd. The rise in supplies from Saudi Arabia and Russia could pressure oil prices.

Likewise, US crude oil production has increased 27% in the last two years. Record crude oil production from the US could also pressure oil prices. Russia, the US, and Saudi Arabia are the top three oil producers in the world. A rise in the production from these countries is bearish for oil prices.

Next, we’ll discuss OPEC’s crude oil production.

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