Crude Oil Prices Shake Off Supply Concerns; Fundamentals Are Still Strong

Crude oil prices rose in the Tuesday session amid further signs that Russian Federation and members of the Organization of Petroleum Exporting Countries were holding the line on an agreement to cap production in an effort to balance the market. The data for January has already been presented to the commission.

Russian companies may cut oil production quicker than had been initially agreed with OPEC, Russian Energy Minister Alexander Novak says. As a dollar-denominated commodity, a lower United States currency tends to make crude oil more affordable to worldwide buyers.

Therefore, OPEC has raised its supply to Asia, and Russian Federation has also re-routed a great chunk of its rising production towards China and the Asia-Pacific over the past decade. Volatility in crude oil prices affects oil and gas producers' earnings like ExxonMobil (XOM), Chevron (CVX), Warren Resources (WRES), QEP Resources (QEP), and Triangle Petroleum (TPLM).

If OPEC continues to comply with the self-imposed cuts of 1.2 million bpd, the market may see even a larger amount of American oil, as Europe, Asia, and Latin America will seek new suppliers, said Andy Lipow, head of a Houston-based consulting company Lipow Oil Associates. Later, non-OPEC countries agreed to cut the output by 558,000 barrels per day during the meeting held December 10, 2016.

Crude oil futures rose Thursday morning, adding to weekly gains amid signs that OPEC is complying with supply quotas.

For the moment, data from the US Energy Information Administration (EIA) suggests that global markets remain oversupplied, with around 95.8 million bpd of demand being met by 96.4 million bpd of supply. The market is likely to turn into a deficit in the coming weeks considering higher than expected compliance from OPEC and non-OPEC producers.

  • Zachary Reyes