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IEA Predicts Crude Deficit in 2017: What's Up for Oil Stocks?
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An oil deficit market is almost unimaginable as the energy sector has long been hit by weak crude prices owing to an oversupplied commodity market.
However, now most oil producing countries seem to have had enough of the low pricing scenario and hence, have joined forces to cut production instead of vying for greater market share by digging more oil wells.
In fact, the International Energy Agency (IEA) has predicted that the year 2017 will see oil deficit market as the OPEC and non-OPEC countries might start curbing output from 2017 onward.
Oil Producers Agree to Curb Production
Non-OPEC players have teamed up with OPEC to curb oil production as the market is flooded with plentiful supply of crude. This is undoubtedly the most important step taken by energy players this year to restore oil prices amid the oversupplied commodity market.
A few days back, OPEC reached a historic accord to lower its production by 1.2 million barrels per day (MMB/D) to 32.5 MMB/D – effective Jan 1, 2017 – from 33.6 MMB/D. Notably, the production cut is much more than what was projected by most analysts. It is to be noted that Saudi Arabia – the most influential member of OPEC – agreed to shoulder most of the output cut.
Now that non-OPEC players too have agreed to curb production, the market will witness a removal of additional 558,000 barrels per day of crude alongside OPEC’s earlier proposal of 1.2 MMB/D output curb.
Of the declared amount of non-OPEC cut, Russia alone will reduce output by 300,000 barrels per day. The country has pledged the bulk amount as it produces much more oil than other countries. This apart, 10 other players including Oman, Azerbaijan and Sudan have also decided to lower output. Most importantly, Saudi Arabia surprised analysts through an indication of further production cut after the accord with non-OPEC producers.
Will Output Cut Lead to Global Oil Deficit?
IEA has projected that by the first half of 2017, the crude market will begin to normalize as supply of the commodity lowers. This, however, will only be possible if the oil producing nations do not deviate from their historic agreement of slashing production.
In fact, IEA added that during the first half of 2017 the oil market will likely witness a deficit of crude by roughly 600,000 barrels a day, given that all the players adhere to their accord.
Impact on Oil Players
The deficit of crude will likely create pressure to raise oil prices to a much higher level than the current one. Definitely, this will be favorable for U.S. oil exploration and production companies as they will be able to sell the commodity at increased prices again. Once they start generating sufficient cashflows they will be able to lower their huge debt burden and once again started paying attractive dividends.
In fact, U.S. shale players have already started gathering to the oil patch with crude price improvement after OPEC agreed production cut. The Nov 2016 rig count report by Baker Hughes Inc. showed that U.S. rig count increased by 36 from October.
The oil exploration stocks that will likely benefit from the development are Newfield Exploration Company , Abraxas Petroleum Corp. (AXAS - Free Report) , Denbury Resources Inc. and Diamondback Energy Inc. (FANG - Free Report) . Newfield sports a Zacks Rank #1 (Strong Buy) while Abraxas, Denbury and Diamondback carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
All four stocks have shown solid price strength of late. Newfield has gained more than 18% during the last one month, compared with only 8% improvement for the Oil & Gas-U.S Exploration & Production industry. Shares of Abraxas, Denbury and Diamondback have also surpassed the broader industry after gaining 30%, 29% and 9%, respectively, during the aforesaid period.
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IEA Predicts Crude Deficit in 2017: What's Up for Oil Stocks?
An oil deficit market is almost unimaginable as the energy sector has long been hit by weak crude prices owing to an oversupplied commodity market.
However, now most oil producing countries seem to have had enough of the low pricing scenario and hence, have joined forces to cut production instead of vying for greater market share by digging more oil wells.
In fact, the International Energy Agency (IEA) has predicted that the year 2017 will see oil deficit market as the OPEC and non-OPEC countries might start curbing output from 2017 onward.
Oil Producers Agree to Curb Production
Non-OPEC players have teamed up with OPEC to curb oil production as the market is flooded with plentiful supply of crude. This is undoubtedly the most important step taken by energy players this year to restore oil prices amid the oversupplied commodity market.
A few days back, OPEC reached a historic accord to lower its production by 1.2 million barrels per day (MMB/D) to 32.5 MMB/D – effective Jan 1, 2017 – from 33.6 MMB/D. Notably, the production cut is much more than what was projected by most analysts. It is to be noted that Saudi Arabia – the most influential member of OPEC – agreed to shoulder most of the output cut.
Now that non-OPEC players too have agreed to curb production, the market will witness a removal of additional 558,000 barrels per day of crude alongside OPEC’s earlier proposal of 1.2 MMB/D output curb.
Of the declared amount of non-OPEC cut, Russia alone will reduce output by 300,000 barrels per day. The country has pledged the bulk amount as it produces much more oil than other countries. This apart, 10 other players including Oman, Azerbaijan and Sudan have also decided to lower output. Most importantly, Saudi Arabia surprised analysts through an indication of further production cut after the accord with non-OPEC producers.
Will Output Cut Lead to Global Oil Deficit?
IEA has projected that by the first half of 2017, the crude market will begin to normalize as supply of the commodity lowers. This, however, will only be possible if the oil producing nations do not deviate from their historic agreement of slashing production.
In fact, IEA added that during the first half of 2017 the oil market will likely witness a deficit of crude by roughly 600,000 barrels a day, given that all the players adhere to their accord.
Impact on Oil Players
The deficit of crude will likely create pressure to raise oil prices to a much higher level than the current one. Definitely, this will be favorable for U.S. oil exploration and production companies as they will be able to sell the commodity at increased prices again. Once they start generating sufficient cashflows they will be able to lower their huge debt burden and once again started paying attractive dividends.
In fact, U.S. shale players have already started gathering to the oil patch with crude price improvement after OPEC agreed production cut. The Nov 2016 rig count report by Baker Hughes Inc. showed that U.S. rig count increased by 36 from October.
The oil exploration stocks that will likely benefit from the development are Newfield Exploration Company , Abraxas Petroleum Corp. (AXAS - Free Report) , Denbury Resources Inc. and Diamondback Energy Inc. (FANG - Free Report) . Newfield sports a Zacks Rank #1 (Strong Buy) while Abraxas, Denbury and Diamondback carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
All four stocks have shown solid price strength of late. Newfield has gained more than 18% during the last one month, compared with only 8% improvement for the Oil & Gas-U.S Exploration & Production industry. Shares of Abraxas, Denbury and Diamondback have also surpassed the broader industry after gaining 30%, 29% and 9%, respectively, during the aforesaid period.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>