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The Zacks Analyst Blog Highlights: Callon Petroleum, Pioneer Natural, Exxon Mobil, RPC and Nine Energy Service

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For Immediate Release

Chicago, IL – June 30, 2021 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Callon Petroleum Company (CPE - Free Report) , Pioneer Natural Resources Company (PXD - Free Report) , Exxon Mobil Corporation (XOM - Free Report) , RPC, Inc. (RES - Free Report) and Nine Energy Service, Inc. (NINE - Free Report) .

Here are highlights from Tuesday’s Analyst Blog:

U.S. Oil Producers Show Restraint: What to Expect from OPEC+ Meeting

The oil-energy space has evolved significantly in the last few quarters backed by the COVID-19 pandemic. Although crude oil prices have surged in the past 12 months, production did not witness a massive jump as it used to do before. Producers are holding back from ramping up output despite the fact that high prices can help them boost the bottom line.

The WTI Crude price index is now hovering above the $70 per barrel mark, reflecting massive gains from last year's historic downfall. However, U.S. oil rig count was 372 for the week ended Jun 25, lower than the prior-week count of 373, per data provided by Baker Hughes. The current tally is well below the heights achieved in recent years.

Notably, domestic production is now estimated to be 15% below the record level of 13 million barrels per day (bpd) achieved last year. Despite lucrative oil prices, producers are holding back from investing heavily in output. This is a healthy sign for the evolving industry, opines several market analysts.

Possible Reasons

Investors in the oil space are looking for more financial returns than production hikes. Moreover, exploration and production companies — most of which have a high debt burden — are focusing more on debt reduction rather than production growth. Callon Petroleum, a U.S. upstream firm, recently stated during a presentation that it is deleveraging the balance sheet through boosting organic free cash flow generation and asset monetization, thanks to higher oil prices.

With increased oil prices, the company can generate more value from non-core assets. Markedly, the high oil prices and motivation for debt reduction can trigger more divestments of non-core assets by upstream companies.

Some analysts are expecting the oil price growth to be unsustainable, which can be another reason behind the tepid drilling recovery. The hike in prices is broadly supported by historic production curtailments by OPEC+ members. As such, producers in the United States are cautiously proceeding by keeping eyes on the OPEC+ countries' moves and the coronavirus pandemic, which is affecting energy demand growth.

Major shale producer, Pioneer Natural Resources is expected to stay put in the short run even if oil prices keep rising. One of the largest publicly-traded energy companies, Exxon Mobil announced its plan in 2019 to boost Permian Basin production to 1 million bpd by 2024. It has curtailed that goal to 750,000 bpd this year.

Moreover, capital availability for oil production is expected to decline slowly, with more investments shifting toward renewable energy sources. Investors with an environmental agenda are pushing more capital toward solar and wind power rather than hydrocarbons.

What's Ahead?

U.S. oilfield service and equipment providers were expecting a massive surge in demand for their services and the number of new deals, triggered by rising oil prices. However, the tepid movement of shale producers and slower resumption of activities are not allowing demand for oilfield services to jump to their potential limit. Restrained spending by upstream companies will likely keep affecting profits of companies like RPCNine Energy Service and others.

Given the current oil market scenario highlighting restrained U.S. shale production, analysts are predicting a sensible boost in output from OPEC members and allies. The OPEC+ members are expected to meet on Thursday and decide on further easing of production curtailment. The curtailed production level as of July is estimated at 5.8 million bpd.

The latest forecast from OPEC suggests that its current output level will be 1.5 million bpd lower than the market demand level in August. If the curtailed level persists, the difference is expected to further widen to 2.2 million bpd. This will give OPEC+ ample room to further ease output cuts.

Importantly, raging COVID-19 second wave in major Asian Economies, the Delta variant of the coronavirus and potential supply restoration of Iranian crude will likely play a decisive role in the meeting. Any massive outbreak due to the Delta variant, which can trigger lockdowns and travel bans, can potentially affect easing of the production curtailments.

However, with multiple vaccine rollouts, growth in oil demand can become stable. The members are expected to watch closely Iran's possible supply restoration, while deciding on how much more production will be restored.

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