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, each rose about 1.5% on Thursday as oil got some assistance from multiple corners.
Predictably, that includes the Organization of Petroleum Exporting Countries (OPEC). Previously, OPEC said it 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.
It appears Saudi Arabia is making good on that pledge.
“Saudi Energy Minister Khalid al-Falih said the kingdom had cut production to its lowest in almost two years,” reports Reuters. “Several OPEC members, including Iraq and Kuwait, said they were implementing the deal and OPEC Secretary-General Mohammed Barkindo said the group expects global oil inventories to fall by the second quarter.”
Some oil traders believe 2017 will be fertile ground for an oil rally. While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.
OPEC is expecting the combination of falling supplies and increased demand to work down inventories and balance the Oil market by the end of the second quarter. The group will monitor and determine whether additional cuts are necessary the next time they meet in May. The EIA reported a larger than expected build of 4.1 million barrels last week. Analysts had only been anticipating an increase of 1.2 million barrels. While this news was bearish for the Oil market, it served as a minor distraction from the OPEC information that was coming out,” according to Options Express.
Eleven other major oil-producing countries that are not OPEC members, including Russia, have also vowed to trim output. Russia is the largest non-OPEC producer, making its production reduction efforts a significant part of oil’s recent resurgence.
“Separately, Russia’s Energy Minister Alexander Novak said the country was starting to implement its own planned cuts, in conjunction with an agreement among non-OPEC producers,” notes Reuters.
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