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OPEC's Algeria Meeting Preview: Here's What You Can Expect
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OPEC or the Organization of the Petroleum Exporting Countries – the international cartel of oil producers – and its allies are scheduled to meet in Algeria on Sunday. As usual, the outcome of the gathering of the group's 15-member countries from the Middle East, Africa and Latin America, and several other major producers, including Russia, is expected to have far-reaching implications for all involved in the oil trade – from retail stations to budgets of oil-dependent nations.
The meeting is aimed to discuss compliance with production curbs in place since 2017 but assumes greater significance in the backdrop of oil prices nearing a four-year high and Washington’s piling pressure to lower them.
OPEC Output Cut Agreement Has Helped Support Oil Prices
In a bold but not unexpected move in November 2016, the OPEC cartel agreed to reduce production to end a global supply glut and support prices, which hit multi-year lows early that year. Seen as a desperate bid to put a floor on falling oil prices, the Saudi Arabia-led group promised to take 1.2 million barrels a day out of the market.
At the next meeting in Vienna in May 2017, the cartel (plus non-members led by Russia) decided to roll over their output cuts until Mar 2018. The inclusion of Russia and other non-OPEC producers pushed up the output freeze cap to 1.8 million barrels a day. Late last year, the coalition prolonged the dynamic for another nine months to the end of 2018.
The voluntary supply withholding pact significantly improved the fundamental picture and helped stabilize the oil market.
Rebound Gains Steam on Geopolitical Supply Shocks
Increased geopolitical tensions and the associated risk premium also boosted oil prices, driving the benchmark Brent and the WTI contracts to their respective three-and-half-year highs of around $75 and $80 recently.
Most of the recent price jump could be attributed to United States’ refusal to issue any waivers on cutting crude imports from Iran by Nov 4, when sanctions are introduced against the country’s petroleum sector. In June, President Trump withdrew from a nuclear deal with OPEC’s third-largest producer and subsequently imposed financial sanctions on the Islamic Republic. The November deadline has stoked worries about an expected cut in Tehran’s oil exports – currently at 2.1 million barrels a day – by around one million barrels and lead to a supply shortage in an already ‘tight’ oil market.
Fast-falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has dwindled by more than 40% since 2016. Venezuela currently churns out around 1.4 million barrels per day, the least since the 1950s and much lower that its pledge per the OPEC-led supply cuts. Restrictive financial sanctions imposed by the United States on the Maduro regime over the past year have further strangulated the Latin American nation’s struggling energy sector.
Trump Pressures OPEC to Lower Crude Prices
Higher crude prices also translate into increased price at the pump – something which is unpalatable to the administration in the United States. Over the course of this year, President Trump has repeatedly demanded action by OPEC to calm rising oil prices.
The current U.S. weekly regular gasoline retail prices per gallon continue to remain at multi-year highs of around $2.85 per gallon, more than 50 cents up from the same time last year.
With the 2018 U.S. congressional midterm elections slated to be held in November, the Trump administration is desperate to control the rising gasoline prices as it might hurt the Republican’s poll chances.
Thoughts Ahead of the OPEC+ Meeting
Pressurized by the United States, OPEC agreed in June to make modest increase in crude output. At the Vienna meeting, top producers came together and decided to raise volumes by about one million barrels per day to make up for the loss of supply from Venezuela and Iran. However, no specific targets were announced.
It is believed that Sunday’s joint OPEC/non-OPEC meeting (or the OPEC+ coalition) will discuss how to share the increase among the participating countries and whether the market requires more of the commodity to offset the losses.
In particular, Saudi Arabia’s stance is of utmost significance. Riyadh, by far OPEC’s major contributor, is reportedly comfortable with Brent oil prices climbing above $80 a barrel but is also concerned that a new bout of production cut-related price rise ahead of the U.S. elections will invite fresh censure from President Donald Trump.
While the meeting is unlikely to see any official action as such a move would warrant an ‘extraordinary meeting’, which is not on the cards, there could be some progress regarding the distribution of the one million barrels increase within its quota framework. In particular, one can expect some reallocation among countries – as in extra output from members having the ability to do so (like Saudi Arabia, Russia) because it is widely thought that several member nations are unable to boost production.
E&P Companies in Focus
The volatile oil exploration and production companies will be the most affected by the OPEC meeting’s outcome, as their fortunes are tied to commodity price fluctuation. Energy investors will be closely tracking S&P components including the likes of Marathon Oil Corporation (MRO - Free Report) , Hess Corporation (HES - Free Report) , Newfield Exploration Company , Anadarko Petroleum Corporation , EOG Resources, Inc. (EOG - Free Report) and Devon Energy Corporation (DVN - Free Report) . However, each of these firms has a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.
Magnolia is an upstream operator in the Eagle Ford Shale and Austin Chalk formations in South Texas. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 70.5% in the same period.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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OPEC's Algeria Meeting Preview: Here's What You Can Expect
OPEC or the Organization of the Petroleum Exporting Countries – the international cartel of oil producers – and its allies are scheduled to meet in Algeria on Sunday. As usual, the outcome of the gathering of the group's 15-member countries from the Middle East, Africa and Latin America, and several other major producers, including Russia, is expected to have far-reaching implications for all involved in the oil trade – from retail stations to budgets of oil-dependent nations.
The meeting is aimed to discuss compliance with production curbs in place since 2017 but assumes greater significance in the backdrop of oil prices nearing a four-year high and Washington’s piling pressure to lower them.
OPEC Output Cut Agreement Has Helped Support Oil Prices
In a bold but not unexpected move in November 2016, the OPEC cartel agreed to reduce production to end a global supply glut and support prices, which hit multi-year lows early that year. Seen as a desperate bid to put a floor on falling oil prices, the Saudi Arabia-led group promised to take 1.2 million barrels a day out of the market.
At the next meeting in Vienna in May 2017, the cartel (plus non-members led by Russia) decided to roll over their output cuts until Mar 2018. The inclusion of Russia and other non-OPEC producers pushed up the output freeze cap to 1.8 million barrels a day. Late last year, the coalition prolonged the dynamic for another nine months to the end of 2018.
The voluntary supply withholding pact significantly improved the fundamental picture and helped stabilize the oil market.
Rebound Gains Steam on Geopolitical Supply Shocks
Increased geopolitical tensions and the associated risk premium also boosted oil prices, driving the benchmark Brent and the WTI contracts to their respective three-and-half-year highs of around $75 and $80 recently.
Most of the recent price jump could be attributed to United States’ refusal to issue any waivers on cutting crude imports from Iran by Nov 4, when sanctions are introduced against the country’s petroleum sector. In June, President Trump withdrew from a nuclear deal with OPEC’s third-largest producer and subsequently imposed financial sanctions on the Islamic Republic. The November deadline has stoked worries about an expected cut in Tehran’s oil exports – currently at 2.1 million barrels a day – by around one million barrels and lead to a supply shortage in an already ‘tight’ oil market.
Fast-falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has dwindled by more than 40% since 2016. Venezuela currently churns out around 1.4 million barrels per day, the least since the 1950s and much lower that its pledge per the OPEC-led supply cuts. Restrictive financial sanctions imposed by the United States on the Maduro regime over the past year have further strangulated the Latin American nation’s struggling energy sector.
Trump Pressures OPEC to Lower Crude Prices
Higher crude prices also translate into increased price at the pump – something which is unpalatable to the administration in the United States. Over the course of this year, President Trump has repeatedly demanded action by OPEC to calm rising oil prices.
The current U.S. weekly regular gasoline retail prices per gallon continue to remain at multi-year highs of around $2.85 per gallon, more than 50 cents up from the same time last year.
With the 2018 U.S. congressional midterm elections slated to be held in November, the Trump administration is desperate to control the rising gasoline prices as it might hurt the Republican’s poll chances.
Thoughts Ahead of the OPEC+ Meeting
Pressurized by the United States, OPEC agreed in June to make modest increase in crude output. At the Vienna meeting, top producers came together and decided to raise volumes by about one million barrels per day to make up for the loss of supply from Venezuela and Iran. However, no specific targets were announced.
It is believed that Sunday’s joint OPEC/non-OPEC meeting (or the OPEC+ coalition) will discuss how to share the increase among the participating countries and whether the market requires more of the commodity to offset the losses.
In particular, Saudi Arabia’s stance is of utmost significance. Riyadh, by far OPEC’s major contributor, is reportedly comfortable with Brent oil prices climbing above $80 a barrel but is also concerned that a new bout of production cut-related price rise ahead of the U.S. elections will invite fresh censure from President Donald Trump.
While the meeting is unlikely to see any official action as such a move would warrant an ‘extraordinary meeting’, which is not on the cards, there could be some progress regarding the distribution of the one million barrels increase within its quota framework. In particular, one can expect some reallocation among countries – as in extra output from members having the ability to do so (like Saudi Arabia, Russia) because it is widely thought that several member nations are unable to boost production.
E&P Companies in Focus
The volatile oil exploration and production companies will be the most affected by the OPEC meeting’s outcome, as their fortunes are tied to commodity price fluctuation. Energy investors will be closely tracking S&P components including the likes of Marathon Oil Corporation (MRO - Free Report) , Hess Corporation (HES - Free Report) , Newfield Exploration Company , Anadarko Petroleum Corporation , EOG Resources, Inc. (EOG - Free Report) and Devon Energy Corporation (DVN - Free Report) . However, each of these firms has a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.
If you are looking for a near-term energy play, Magnolia Oil & Gas Corporation (MGY - Free Report) may be an excellent selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Magnolia is an upstream operator in the Eagle Ford Shale and Austin Chalk formations in South Texas. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 70.5% in the same period.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>