On June 11, Iraq’s oil minister said that ongoing supply cuts should continue in order to support crude oil prices. He also added that oil producers are overreacting to increased oil production due to the possibility of new sanctions on Iran and Venezuela. There’s uncertainty about whether or not OPEC will increase the production at the upcoming meeting.
WTI oil prices increased 0.5% on June 11. The Energy Select Sector SPDR ETF (XLE) increased 0.5% on the same day. The companies in XLE produce crude oil and natural gas, refine crude oil into fuels, and provide drilling and other energy-related services.
Apache (APA), Newfield Exploration (NFX), Williams Companies (WMB), and Marathon Oil (MRO) account for 4.4% of XLE’s holdings. These stocks increased ~5.6%, ~3.3%, 2.4%, and ~2.3%, respectively, on June 11. These stocks were the top percentage gainers in XLE’s portfolio on June 11.
OPEC producers and Russia agreed to reduce the crude oil production by 1,800,000 bpd from January 2017 to December 2018. Brent and WTI oil prices have risen ~71% and ~55.4% since June 21, 2017, partly due to the current supply cuts.
OPEC, Russia, and US crude oil production
OPEC’s crude oil production averaged 32 MMbpd (million barrels per day) in May. The production was at a 13-month low. Saudi Arabia and Iraq’s production rose by 60,000 bpd (barrels per day) to 10 MMbpd and 50,000 bpd to 4.45 MMbpd, respectively, in May. These countries are the two largest producers in OPEC. OPEC had 163% compliance with the supply cuts in May—partly due to supply outages.
Russia’s crude oil production averaged 11.1 MMbpd in early June. In May, Russia’s production averaged 10.97 MMbpd for the third consecutive month. Rosneft is Russia’s largest oil producer. Rosneft will be able to increase crude oil production by 70,000 bpd in just two days if the ongoing supply cuts are lifted.
US crude oil production increased by 31,000 bpd to a record high of 10.8 MMbpd on May 25–June 1.
On May 25, Saudi Arabia and Russia expressed interest about higher crude oil production once new sanctions are implemented on Iran and Venezuela. As a result, Brent and WTI crude oil futures dropped 3% and 4%, respectively, on May 25.
On June 2, Saudi Arabia, the United Arab Emirates, Kuwait, Algeria, and Oman had a meeting in Kuwait. The unofficial meeting stressed the importance of ongoing supply cuts until December 2018. WTI crude oil futures have increased 0.4% since June 1, while Brent has declined 0.4% during the same period.
OPEC’s next meeting is scheduled for June 22. Any bearish comments related to a rise in production from these countries could pressure oil prices.
Next, we’ll discuss Iran’s crude oil production.