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All Eyes on OPEC: Production Cut Might Deepen


Jul. 1 2019, Published 7:55 a.m. ET

US crude oil

On June 27, US crude oil August futures rose 0.1% and closed at $59.43 per barrel. Oil continued to extend its gains. The gains started after rising geopolitical tension in the Middle East in mid-June. Inventory data also supported oil’s rise. As of 2:08 AM ET on June 28, US crude oil active futures were at $59.11, which was~2.9% higher than the closing level the previous week. If US crude oil prices stay at these levels on July 1, oil prices would gain for the second consecutive week.

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OPEC might deepen the output cut

Based on the CME’s OPEC Meeting Outcome Probability tool, there’s a 97.53% chance that OPEC might deepen the oil output cut. The probability has risen significantly in the last few days. The probability of another extension of the 1.2 MMbpd (million barrel per day) output cut has fallen to ~2.47%. This week, the G20 meeting will likely play a crucial role in oil prices next week.

However, gasoline prices will likely continue to outperform oil prices despite the outcome of OPEC’s meeting. Downstream stocks like PBF Energy (PBF) and others will be a safer bet if oil prices fall after OPEC’s meeting.

Hess (HES) and Whiting Petroleum (WLL), the strongest oil-weighted stocks, rose 4.8% and 0.8%. Hess and Whiting Petroleum operate with a production mix of 68.2% and 79.4% in commodities linked to oil prices. The United States Oil ETF (USO), which holds active US crude oil futures, has risen 3.7% in the trailing week. USO rose 10.7% in June—almost on par with US crude oil’s rise.


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