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On Jun 22, a congregation of OPEC (Oil and Petroleum Exporting Countries) countries and non- OPEC allies will assemble in Vienna to take a decision regarding an 18-month old agreement to curb output in order to support global oil prices.
Notably, Saudi Arabia and Russia are extremely eager to dissolve the production barrier. However, some OPEC members, especially Iran, Iraq, Venezuela and Iraq are in favor of maintaining status quo.
Supply Concerns of Iran and Venezuela
Issues related to Iran stem from the United States’ withdrawal from the nuclear pact and plans of re-imposing sanctions the country. Iran currently exports around 2.5 million barrels of oil a day, reflecting around 4% of world’s total supply. The U.S. sanctions will reduce its oil export to around 1 million barrels per day.
Meanwhile, Venezuela is plagued with economic instability, massive debt load, unrest in the workforce and hyperinflation. These factors are likely to take severe toll on the country’s oil production till the end of 2018. In fact, oil exploration has reached at its lowest level in 30 years and is far below the level of strategic cuts required by the OPEC.
These two major oil exporters and some other oil countries suffering production inefficiencies like Iraq are vehemently opposing the removal of output restrictions. More oil production means lower oil prices. This implies that the oil revenues of Iran and Venezuela will be hurt significantly. Consequently, this will hamper the economic well-being of these countries.
Saudi Arabia and Russia to Increase Oil Productions
The two global oil behemoths both in terms of oil reserve and export, Saudi Arabia and Russia, are in favor of elimination of output restrictions even if that means lower oil prices. These two countries want to increase oil supply by 1.5 million-barrels-a-day. These two countries can easily ramp up oil production and increase revenues through higher volume sales by gaining market share from other OPEC and non-OPEC partners.
However, an anonymous OPEC source has hinted that OPEC and Russia will finally opt for a compromise which will result in an increase of oil supply 300,000 to 600,000 barrels a day, much lower than 1.5 million barrels a day.
Likely Effect on U.S. Oil Companies
Several industry experts firmly believe that OPEC will only compensate the shortage originating from Venezuela or Iran and some other countries. However, the largest oil production cartel will keep international oil production levels intact.
Higher oil prices will be major boon for the U.S. oil exploration industry. The U.S. shale production of crude oil is currently going on in full swing. Crude oil production touched a new weekly high of 10.8 million barrels a day and is poised to hit 12 million barrels a day in 2019 making United States the world’s largest crude oil producer.
Although China has imposed tariffs on U.S. crude, strong global demand for oil will enable the United States to seek out a substitute for China which accounts for 20% of U.S. oil exports. Higher oil price and higher volume sales will significantly increase revenues of oil majors.
The chart below depicts price performance of above-mentioned four stocks in the last three months.
Bottom Line
The U.S. stock markets are facing severe volatility in 2018 primarily due to concern about global trade war, geopolitical conflicts and inflationary fears. Notably, the technology and energy are the two sectors which are providing stability to market fluctuations. However, the tech sector by its nature depends on successful new product innovation while energy sector has a stable footing. Consequently, oil price surge may act as a major catalyst to bring back sustained market momentum.
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.
Image: Bigstock
Will OPEC Relax Output Curbs? Oil Stocks in Focus
On Jun 22, a congregation of OPEC (Oil and Petroleum Exporting Countries) countries and non- OPEC allies will assemble in Vienna to take a decision regarding an 18-month old agreement to curb output in order to support global oil prices.
Notably, Saudi Arabia and Russia are extremely eager to dissolve the production barrier. However, some OPEC members, especially Iran, Iraq, Venezuela and Iraq are in favor of maintaining status quo.
Supply Concerns of Iran and Venezuela
Issues related to Iran stem from the United States’ withdrawal from the nuclear pact and plans of re-imposing sanctions the country. Iran currently exports around 2.5 million barrels of oil a day, reflecting around 4% of world’s total supply. The U.S. sanctions will reduce its oil export to around 1 million barrels per day.
Meanwhile, Venezuela is plagued with economic instability, massive debt load, unrest in the workforce and hyperinflation. These factors are likely to take severe toll on the country’s oil production till the end of 2018. In fact, oil exploration has reached at its lowest level in 30 years and is far below the level of strategic cuts required by the OPEC.
These two major oil exporters and some other oil countries suffering production inefficiencies like Iraq are vehemently opposing the removal of output restrictions. More oil production means lower oil prices. This implies that the oil revenues of Iran and Venezuela will be hurt significantly. Consequently, this will hamper the economic well-being of these countries.
Saudi Arabia and Russia to Increase Oil Productions
The two global oil behemoths both in terms of oil reserve and export, Saudi Arabia and Russia, are in favor of elimination of output restrictions even if that means lower oil prices. These two countries want to increase oil supply by 1.5 million-barrels-a-day. These two countries can easily ramp up oil production and increase revenues through higher volume sales by gaining market share from other OPEC and non-OPEC partners.
However, an anonymous OPEC source has hinted that OPEC and Russia will finally opt for a compromise which will result in an increase of oil supply 300,000 to 600,000 barrels a day, much lower than 1.5 million barrels a day.
Likely Effect on U.S. Oil Companies
Several industry experts firmly believe that OPEC will only compensate the shortage originating from Venezuela or Iran and some other countries. However, the largest oil production cartel will keep international oil production levels intact.
Higher oil prices will be major boon for the U.S. oil exploration industry. The U.S. shale production of crude oil is currently going on in full swing. Crude oil production touched a new weekly high of 10.8 million barrels a day and is poised to hit 12 million barrels a day in 2019 making United States the world’s largest crude oil producer.
Although China has imposed tariffs on U.S. crude, strong global demand for oil will enable the United States to seek out a substitute for China which accounts for 20% of U.S. oil exports. Higher oil price and higher volume sales will significantly increase revenues of oil majors.
Major beneficiaries will be Exxon Mobil Corp. (XOM - Free Report) , Chevron Corp. (CVX - Free Report) , Occidental Petroleum Corp. (OXY - Free Report) and ConocoPhillips (COP - Free Report) to name a few. Chevron and Occidental carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below depicts price performance of above-mentioned four stocks in the last three months.
Bottom Line
The U.S. stock markets are facing severe volatility in 2018 primarily due to concern about global trade war, geopolitical conflicts and inflationary fears. Notably, the technology and energy are the two sectors which are providing stability to market fluctuations. However, the tech sector by its nature depends on successful new product innovation while energy sector has a stable footing. Consequently, oil price surge may act as a major catalyst to bring back sustained market momentum.
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>>