Oil prices have started to gain momentum since crude producers decided to limit the commodity output. In fact, Saudi Arabia has already limited crude production and in keeping with its previous announcement.

The tide seems to have turned for the U.S. exploration and production (E&P) companies. We note that U.S energy firms now have a huge opportunity to outpace OPEC and Russia in the bid to raise production. We believe that U.S. shale companies are likely to keep producing more oil in the coming days at the expense of OPEC and sell the commodity at much higher prices to lower their debt burden.

In fact, U.S. players have already started gathering in the oil plays. Last week, U.S. crude plays witnessed an increase in rig count from the prior week – marking the eighth consecutive weekly rig count increase.

Saudi Arabia Limits Oil Production

Acknowledging that the market is flooded with plentiful supply of crude, non-OPEC players have teamed up with OPEC to curb oil production.

On Nov 30, 2016, OPEC reached the 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 estimated by most analysts. It is to be noted that Saudi Arabia – the most influential OPEC member – agreed to shoulder the majority of the output cut.

Shortly after, non-OPEC players jumped on the bandwagon to curb output. Given this decision, the market will see reduction of an additional 558,000 barrels per day of crude. Among the non-OPEC members, Russia alone will reduce output by 300,000 barrels per day. The country has pledged the bulk amount as it produces more oil than other countries. We note that 10 other players including Oman, Azerbaijan and Sudan have also decided to lower output.

Amid skepticism about the OPEC’s compliance with the output cut deal, Saudi Arabia has surprised the market by curbing production. As per The Wall Street Journal, the country has lowered its production by at least 486,000 barrels per day from Oct 2016. 

Rig Count Continues to Increase

The present state of affairs is being considered by many as an opportune moment for U.S. shale players to outpace OPEC in the race for production share. With the cartel’s output cut, the U.S. energy companies are well poised to take advantage of higher oil prices in the coming days by producing more oil.

In fact, U.S. energy players might continue to add more rigs in the oil patch since the crude producers announced their decision to curb output. In its weekly release, Houston, TX-based oilfield services company Baker Hughes Inc. BHI reported higher U.S. rig count (number of rigs searching for oil and gas in the country) than before.

Rigs engaged in E&P in the U.S. totaled 665 in the week ended Jan 6, 2017. This was up by seven from the previous week. In details, the report shows that oil rigs in the U.S increased by four, while the natural gas rig count rose by three.

U.S E&P Companies to Benefit

Some U.S. E&P firms that stand to gain from the aforesaid developments are Sundance Energy Australia Ltd. , Abraxas Petroleum Corporation (AXAS Quick QuoteAXAS - Free Report) , Bill Barrett Corp. , Comstock Resources, Inc. (CRK Quick QuoteCRK - Free Report) and Concho Resources Inc. . Sundance sports a Zacks Rank #1 (Strong Buy), while Abraxas, Bill Barrett, Comstock and Concho carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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