OPEC and 11 other oil producers, including Russia, have finally got their act together. As a result, record inventories accumulated since 2014 could dwindle at a rate of about 760,000 barrels per day in the first half of 2017.
This would erode about 46% of the 300 million-barrel oil-stockpile surplus targeted by OPEC. The result would be stable and rising oil prices, good news for oil producers but bad news for consumers and gas prices. Not as bad as one might think however, say the experts - possibly less than $0.15 per gallon.
Not A Done Deal
Despite apparent agreement among oil producers, reaching this target would require total compliance with a promised 1.8 million-barrel production cut. So far, such an achievement has eluded these same producers in past supply deals.
OPEC along would have to cut 1.2 million barrels per day and Russia would have to follow through with its promise to curb its output by as much as 300,000 barrels a day. It’s a tall order for a confederation that has rarely stuck to its guns on agreements like this.
U.S. Shale Drillers Could Be Winners
As OPEC and others seek to cement their agreement, U.S. crude futures soared Monday to $52.44 up 0.94 or 1.83%. Following the announcement of the OPEC deal the S&P energy sector was up 1.4%.
Michael Cohen, head of energy commodities research at Barclays said, "It's not really that simple, but clearly the Saudis have stuff to gain from this. ... They have things they need to achieve, from their social constraints and things get worse when prices get low. It's not a zero sum for sheiks versus shale, but shale certainly is the biggest winner. They were looking at a picture where prices could have conceivably been $40 to $45 for another year."
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Shale Players With Most DUCs
When it comes to taking advantage of a boost in oil prices the quickest, companies with the largest number of drilled but uncompleted wells (DUCs) stand to gain the most.
Some of those companies include: Range Resources Corp. (NYSE:RRCB), Cabot Oil & Gas Corp. (NYSE:COGC), EQT Corp. (NYSE:EQTC), Marathon Oil. Corp. (NYSE:MROC), Chesapeake Energy Corp. (NYSE:CHKC), EOG Resources Inc. (NYSE:EOGC), Concho Resources Inc. (NYSE:CXOC), Energen Resources Corp. (NYSE:EGNC), Occidental Petroleum Corp. (NYSE:OXYC), Exxon Mobil Corp. (NYSE:XOMC) and Continental Resources Inc.
The fact a company has DUCs is no guarantee of future success. Overall financial health is critical no matter what. Generally speaking investment in oil is a long-term commitment. Rising prices now are no guarantee of rising prices in the future.