8 Feb

Could Major Oil Producers’ Production Cut Extend to 2H17?

WRITTEN BY Gordon Kristopher FEATURED IN Macroeconomic Analysis

Crude oil prices and major oil producers’ output cut plans 

Crude oil (USO) (UCO) (USL) (IXC) (ERY) prices rose ~18% between November 15, 2016, and December 28, 2016, due to the expectation that major oil producers’ production cuts would curb oversupply in the market.

Could Major Oil Producers’ Production Cut Extend to 2H17?

However, crude oil prices have fallen ~4% in February despite the fall in crude oil production from OPEC and Russia in January. For more crude oil prices and its drivers, read Part 1 of this series. A rise in production from Iran in January 2017 also pressured oil prices.

On February 7, 2017, Iran’s oil minister said that major oil producers should extend the oil production cut deal in 2H17. The production cut would curb oversupply in the oil market and support crude oil (BNO) (XLE) (ERY) (ERX) prices. Higher crude oil prices have a positive impact on oil and gas producers’ earnings like Marathon Oil (MRO), Warren Resources (WRES), Hess (HES), and PDC Energy (PDCE).

Saudi Arabia and major oil producers output cut plans 

In January 2017, Saudi Arabia’s energy minister said that OPEC might not extend the production cut deal beyond six months. He thinks that the oil market’s rebalancing will end by 1H17.

If there’s a delay in the rebalancing, we might see production cuts continue for another six months. Changes in supply and demand impact crude oil (FENY) (XES) (USO) (RYE) prices.

In the next part of the series, we’ll analyze whether or not major oil producers’ production cut plan will fail.

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