Oil hit a 1-month low Tuesday thanks to increased production from Libya, Iran and Iraq. Investors have started to wonder whether the OPEC deal to cut production will be enough raise prices.
When the deal was announced mood was positive and oil prices climbed to 18-month highs. February light, sweet crude on the New York Mercantile Exchange dropped to $50.82/barrel. Brent crude lost $1.30 and landed on $53.64/barrel.
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No Deal For Some
Although OPEC members and several other exporters agreed to cut output by almost 1.8 million barrels per day, some countries including Libya and Iran were exempted due to civil conflicts or economic conditions.
Iraq was supposed to cut production by a lesser amount but government officials decided to increase exports instead. A deal is only a deal if everyone participates.
U.S. Inventories Rise
Meanwhile U.S. crude inventories likely rose by 1.8 million barrels in the week that ended Jan. 6. Gasoline stocks grew by 1.25 million barrels and distillate stocks shrunk by a mere 130,000 barrels.
Gasoline futures lost 1.5% dropping to $1.5467 a gallon. This was the sixth loss in 7 sessions. Diesel futures fell 1.6% $1.6114 per gallon. Diesel was down 5.4% in back-to-back losing sessions.
Russian Weather Helps
Despite a lack of unity among OPEC countries, Russia, which agreed to cut output despite not being an OPEC member, cut production by 100,000 barrels per day in the first week of January.
This was less the result of cooperation than it was the extreme cold which hit minus 60 degrees Celsius. Oil engineers said they expected further reductions in Russia if the extreme cold continues.
Who’s Hurt – Who’s Helped
At the end of the day the Dow, once again, failed to reach 20,000 thanks to declines in International Business Machines Corp. (NYSE:IBMC), Merck & Co. Inc. (NYSE:MRKC), Exxon Mobil Corp. (NYSE:XOMD) and Procter & Gamble Co. (NYSE:PGC). The Dow ended down 31.85 points.
Traders and investors held back, waiting to see what happens to oil and also what the future holds following the inauguration of President-elect Donald Trump.
A Bull Oil Bet
Despite declining oil and gas prices, National Oilwell has several things going for it: strong balance sheet, quality management, profitable operations and solid value stock. Enterprise Products has an unparalleled natural gas liquids pipeline network, great balance sheet and, as with National Oilwell, a strong management team.
As for ConocoPhillips that company has undergone a metamorphosis that makes it attractive for that reason alone. This was a company that could not function if oil was under $75 per barrel. Now it does well at under $50.