Will OPEC Surprise Investors With Deeper Cut In Oil Volumes?

Before making the next move, energy investors and traders are eagerly waiting for OPEC’s Vienna meet, which is among the prime events to determine the direction of oil prices.

Notably, the ongoing tensions between the United States and Iran are raising possibilities of a further tightening of global crude supply. Hence, a probable extension of the OPEC’s prior production cut agreement should lend further support to oil prices, favoring crude explorers and producers.

Vienna Meet Motive

During Jul 1-2, OPEC will meet with its allies, led by Russia, in Vienna, Austria. In the meeting OPEC+ (members and some non-members of OPEC) will probably discuss about the feasibility of extending the oil production cut.

From Jan 1 through June, the OPEC+ was in an agreement of cutting daily production of oil by 1.2 million barrels. The agreement is near expiry and the countries are set to meet for a fresh deal that will probably extend the production cut, per most analysts.

Deeper Cut in the Cards?

Thamer Ghadhban, oil minister of Iraq, revealed that at least OPEC+ will choose to extend the level of oil output curb.

Notably, Ghadhban hinted that since the level of cut, agreed earlier, was not significant enough in stabilizing crude oversupply, a deeper curb is on the cards. Per Reuters, OPEC member Algeria gestured that the cut could be deeper by roughly 600,000 barrel per day.

Will it Favor Oil Majors?

To a great extent, the outcome of the OPEC meet is dependent on what Trump and Jinping decide at the G-20 summit in Japan on Saturday, per media sources. Sources added that the market is not expecting the two big economies to reach a trade deal. In fact, if the United States and China fail to come to a conclusion, Washington could slap Beijing with tariffs on remaining imports, as hinted by Trump earlier.

Hence, if the trade war escalates and hurts global demand for crude further, OPEC members might consider a deeper crude production cut to support oil price. This will back big oil producers like Exxon Mobil Corporation (NYSE:XOM), Royal Dutch Shell (LON:RDSa) plc RDS.A, BP plc (NYSE:BP) , ConocoPhillips (NYSE:COP) and Chevron Corporation (NYSE:CVX) . While ExxonMobil, Royal Dutch Shell, BP and ConocoPhillips carry a Zacks Rank #3 (Hold), Chevron sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

On the whole, the future movement of crude price is heavily dependent on Trump and Jinping’s meet, determining the commodity’s demand. Meanwhile, OPEC’s Vienna meet will give shape to the supply side.

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