Amid rising speculation, anticipation and skepticism, OPEC leaders were finally in tune with an output cut on November 30 in Vienna. The deal sent oil prices soaring the most in nine months and global energy stocks to the highest levels since January. Though Iraq and Iran were hurdles to this historic agreement, the cartel was finally able to cut the output cut deal for the first time in eight years.
WTI crude ETF United States Oil (USO - Free Report) added about 8.7% on the day the deal was announced while Brent crude ETF United States Brent Oil (BNO - Free Report) climbed about 9.1%. The largest energy ETF Energy Select Sector SPDR ETF (XLE - Free Report) jumped 5.1% on November 30 while the S&P 500 lost about 0.3% (read: Oil ETFs Jump on Renewed Hopes of OPEC Cut).
Investors should note that OPEC was third time lucky about an output cut this year after reeling under acute pricing pressure for long. Attempts were also made in Doha in April and in Algeria in September (read: 3 Country ETFs Soaring on Hopes of Oil Output Curb).
OPEC top-brass Saudi has disagreed to the deal mainly citing Iran’s lack of participation. In fact, Iran has been boosting production since international sanctions on it were lifted in January. This is because Iran was producing below its capacity and pre-sanctions levels since 2011 while the other countries raised their output limit to record levels.
However, finally OPEC decided to slash production by about 1.2 million barrels a day by January to about 32.5 million barrels. Notably, OPEC’s estimated output in October was 33.6 million barrels a day.
Inside Individual Production Quotas
The agreement excluded Nigeria and Libya, but enacted quotas on Iraq for the first time since the 1990s. Iraq has now decided to reduce output by 210,000 barrels a day from October levels while the OPEC powerhouse Saudi will decrease production by 486,000 barrels a day to 10.058 million a day.
The key bottleneck in the deal so far – Iran – was permitted to increase production to about 3.8 million barrels a day, against Saudi Arabia’s previous pitch for 3.707 million barrels a day.
The United Arab Emirates and Kuwait will lower production by 139,000 barrels a day and 131,000 a day, respectively. More importantly, non-OPEC country Russia, which was producing at a post-Soviet record, will also slash its output by 300,000 barrels a day though it is “conditional on its technical abilities.”
Time to Buy Oil & Energy ETFs
Though anything concrete in the oil patch will happen only when the participants stick to their commitments, as of now there should be a rally in the oil patch. In any case, several analysts like Goldman Sachs and Soros Fund Management are bullish on oil, irrespective of the output cut deal. While Goldman anticipates a deficit in the oil patch in the second half of next year, billionaire investors George Soros assumed new positions in eight energy-related firms in Q3. Goldman now sees the deal as “incredibly appealing.”
ETFs & Stocks to Profit
So, while oil ETFs including USO, BNO, iPath S&P GSCI Crude Oil TR ETN (OIL - Free Report) and VelocityShares 3x Long Crude Oil ETN UWTI aregreat betson the OPEC deal,investors can also have a look at regular and leveraged energy ETFs too. Several energy ETFs hit a 52-week high following agreement (read: 10 Leveraged/Inverse ETFs with Over 30% Surge in November).
Below we highlight the energy ETFs that surged 10% or more on November 30.
Direxion Daily S&P Oil&Gas Exploration & Production Bull 3X ETFGUSH – Up 34.6%
Direxion Daily Energy Bull 3X ETF(ERX - Free Report) – Up 15.3%
PowerShares S&P SmallCap Energy ETFPSCE – Up 12.73%
PowerShares DWA Energy Momentum ETFPXI – Up 12.66%
SPDR S&P Oil & Gas Equipment &Services ETFXES – Up 12.59%
SPDR S&P Oil & Gas Exploration & Productiin ETF(XOP - Free Report) – Up 11.58%
VanEck Vectors Oil Services ETFOIH – Up 10.62%
ProShares Ultra Oil & Gas DIG – Up 10.56%
VanEck Vectors Unconventional Oil & Gas ETFFRAK – Up 10.46%
Stocks at 52-Week High
Below are the energy stocks that hit a 52-week high on November 30 and surged at least 20%.
Oasis Petroleum Inc. (OAS - Free Report) – Up 27.73%
WPX Energy Inc. (WPX - Free Report) – Up 27.59%
Continental Resources Inc. (CLR - Free Report) – Up 22.88%
Nabors Industries Ltd. (NBR - Free Report) – Up 22.25%
Callon Petroleum Company (CPE - Free Report) – Up 22.08%
Marathon Oil Corporation (MRO - Free Report) – Up 20.80%
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