OPEC’s meeting might surprise the market expectation for an increase in the oil output cut rate. Based on media reports, OPEC plus has agreed to extend the current production cut agreement for 2019. Russia and Iran agreed on the need to curb oil output in order to boost oil prices amid weakening demand. Last month, the IEA reduced its demand growth forecast for 2019.
However, based on the CME’s OPEC Meeting Outcome Probability tool, there’s ~92% chance that OPEC might deepen the oil output cut. The probability has risen significantly in the last few days. The probability of the current output cut extension was 8%—a factor that might concern oil prices after OPEC’s actual announcement.
US crude oil last week
In the week ending June 28, US crude oil active futures rose 1.8% and settled at $58.47 per barrel—the second consecutive weekly gain for oil prices. The United States Oil Fund LP (USO) rose 0.6% during the same period. USO holds US crude oil active futures. The large fall in oil inventories plus the expectation of OPEC deepening the oil output cut could be behind oil’s rise. Last week, the US dollar fell 0.1%—a positive development for oil prices.
Energy stocks on July 1
At 7:12 AM ET on July 1, US crude oil active futures were trading 2.2% higher compared to last week. Energy stocks might open higher on July 1 due to oil’s gains. Last week, the Energy Select Sector SPDR Fund (XLE) rose 0.2% despite US crude oil’s gain of nearly two percentage points. The S&P 500 Index (SPY) fell 0.3%. Tariff-related concerns dragged the broader market last week. Even if tough energy stocks open higher on July 1, the gains might fade if the S&P 500 Index falls.
Among oil-weighted stocks, Carrizo Oil & Gas (CRZO), Pioneer Natural Resources (PXD), and Occidental Petroleum (OXY) might be important for oil traders. Last week, they exhibited a strong correlation with US crude oil active futures. Carrizo Oil & Gas, Pioneer Natural Resources, and Occidental Petroleum operate with a production mix of 81.7%, 82%, and 78.2% in commodities linked to oil prices. In the natural gas–weighted stocks space, Chesapeake Energy (CHK) might capture oil’s gains faster than others. Chesapeake Energy operates with a production mix of 30.6% in commodities linked to oil prices.