Crude oil futures
WTI (West Texas Intermediate) crude oil (USO) (OIL) futures contracts for January delivery rose 0.6% and were trading at $57.4 per barrel at 1:18 AM EST on December 13, 2017. Prices rose due to the API’s bullish crude oil inventory report. The Energy Select Sector SPDR ETF (XLE) fell 0.3%, while the iShares US Oil Equipment & Services ETF (IEZ) rose 0.3% on December 12, 2017.
The E-Mini S&P 500 (SPY) futures contracts for March delivery fell 0.1% to 2,665 at 1:18 AM EST on December 13, 2017.
OPEC’s crude oil production
The EIA released its monthly STEO (Short-Term Energy Outlook) report on December 12, 2017. OPEC’s crude oil production fell by 252,000 bpd (barrels per day) to 32,463,000 bpd in November 2017, according to the EIA. Production fell 0.7% month-over-month and by 981,000 bpd or 3% year-over-year. OPEC’s crude oil production was at the lowest level since May 2017.
Production fell due to lower production from Angola, Iraq, Saudi Arabia, and Venezuela. OPEC contributes ~32% of the global oil production. Any fall in OPEC’s production is bullish for oil prices. Higher oil (UCO) prices benefit oil producers’ (XES) (PXI) earnings like BP (BP), Rosneft, Cobalt International Energy (CIE), and Sanchez Energy (SN).
OPEC’s exit strategy
OPEC’s production also fell due to current production cuts. The production cuts were extended until December 2018. On December 11, 2017, the United Arab Emirates said that OPEC could decide on a smooth exit strategy for the current production cuts in June 2018 if global supplies tightened. Kuwait stated that there could be the possibility of an early exit from the production cuts if the oil market rebalanced faster than the expectations. Russia anticipates a quicker expiry of the production cuts so that US shale producers don’t take much advantage of higher oil prices.
Higher compliance with the pledged cuts will be the most positive driver for oil (DBO) (SCO) prices in 2018.
Next, we’ll discuss the significant negative driver for oil prices.
The global crude oil supply averaged 97.43 MMbpd (million barrels per day) in 1H17, according to the EIA. It was 0.67 MMbpd or 0.7% more than 1H16.
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