Oil has recently been one of the best-performing commodities. The performances of the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, confirm as much.
Of course, a big reason for the recent bullishness regarding crude is the production cut announced earlier this month by the Organization of Petroleum Exporting Countries (OPEC).
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
In fact, Nigeria, Africa’s largest oil producer, has said it plans to boost output. However, other non-OPEC countries are expected to follow the cartel in reducing production and that could trigger dwindling supplies next year.
“Oil stockpiles will decline by about 600,000 barrels a day in the next six months as curbs by OPEC and its partners take effect, said the agency, which had previously assumed inventories wouldn’t drop until the end of 2017. Russia, the biggest producer outside OPEC to join the deal, will gradually implement the full reduction it promised, according to the International Energy Agency (IEA),” reports Grant Smith for Bloomberg.
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“Almost a dozen non-OPEC producers have agreed to reduce their crude oil output in a bid to support OPEC’s efforts to prop up prices. Among them are Mexico, which has pledged to cut 100,000 bpd from its daily total; Azerbaijan, which agreed to reduce production by 35,000 bpd; and Oman, which will cut 40,000 bpd from its daily output. Kazakhstan also joined the agreement, pledging a 20,000-bpd reduction,” according to OilPrice.com.
Other major oil-producing nations that are not OPEC members but are pledging to curb production include Bahrain, Bolivia, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan.
Traders have actually pulled money from oil ETFs with USO bleeding nearly $571 million just this month. BNO is lighter by $6.75 million in December. For supplies to truly dwindle, OPEC needs to deliver on its promised output cuts.
“The stockpile declines will only occur if OPEC reduces supply enough to meet and maintain a target of about 32.7 million barrels a day, the agency said. The organization pumped a record 34.2 million a day in November,” reports Bloomberg.
For more information on the crude oil market, visit our oil category.