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Oil Prices Remain Stable Despite OPEC Production Cuts

Oil prices remain stable despite cuts in production by the OPEC countries and Russia. The crude price stays in the range $50-$55 a barrel since the production cuts were announced on November 30, 2016. WTI crude futures dropped from its December maximum of $55 to $52.62 a barrel.


oil prices
WTI crude oil futures price


As was announced last week, the proposed production cuts were implemented by 75%. Despite the drop of oil exports from OPEC and Russia, the oil prices remain low primarily due to rise in production in non-OPEC countries, including the US. It is estimated that the number of active US oil rigs is going to rise at the rate of seven rigs per week. The following chart (source – Bloomberg) shows growth of the number of active US oil rigs.


Oil prices are flat despite OPEC oil production cut
Expansion of US oil drilling in response to OPEC oil production cuts


Oil has fluctuated above $50 a barrel since 11 nations including Russia last month joined with the Organization of Petroleum Exporting Countries to trim supply. While Saudi Arabia says more than 80 percent of the targeted cuts have been implemented since the deal took effect on Jan. 1, the International Energy Agency predicted a gain in U.S. shale output as prices rise.

“It looks like we are still moving in response to Friday’s rig data,” Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. “U.S., crude production is above 8.9 million barrels and rising while the rig count grows. It looks like North American, particularly U.S. production, will eat into the OPEC cuts.” (Read the full article)

There are different predictions regarding the future of OPEC oil production cut agreement, which is supposed to end by the second half of 2017. While some analysts predict, that production will rise after the agreement expires, others predict that OPEC oil outputs will stay reduced for a long time. The reasons are unwillingness and inability of Saudi Arabia to undercut the US shale producers. Another reason is the plant to increase capitalization of the state owned oil production company Aramco.

… There’s Riyadh’s grand plan: the Aramco IPO — sell shares of state-owned company Aramco to the public to finance its vision 2030, which will make the Saudi economy less dependent on oil.

The success of Aramco’s IPO, which promises to be the biggest in history, relies heavily on the state of the oil and equity markets at the time of the “road show”– the date for marketing of the IPO. The higher the oil prices, the easier it will be to sell Aramco to institutional investors at a high price. (Read the full article)

See also:

Crude Oil Prices: Potentially Bearish Factors

Can US Oil Imports from OPEC be Stopped?

Oil Production Cuts by OPEC Proceed as Planned