Oil has started gaining momentum after OPEC and non-OPEC players joined forces to curb crude production in the wake of a supply glut. This was undoubtedly the most important step taken last year to restore the crippling crude.
It seems that U.S shale companies are now in an advantageous position to beat OPEC and Russia in the bid to raise production. In fact, U.S. players have already started gathering in oil plays as evident by the fact that these have witnessed the maximum number of oil rigs since Dec 31, 2015.
OPEC & Non-OPEC Players to Cut Output
Non-OPEC players teamed up with OPEC to curb oil production as the market is flooded with plentiful supply of crude.
On Nov 30, 2016, 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 OPEC member - agreed to shoulder most of the output cut.
Shortly after that, non-OPEC players jumped on the bandwagon. Given this decision, the market will see reduction of an additional 558,000 barrels per day of crude.
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 more oil than the other countries. We note that 10 other players including Oman, Azerbaijan and Sudan also decided to lower output. Most importantly, Saudi Arabia surprised analysts with the indication of further production cut after the accord with non-OPEC producers.
Oil Rigs Hits Record High on Crude Producer's Verdict
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, 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 go on adding more rigs in the oil patch after the oil producers announced their decision to curb output. In its weekly release, Houston, TX-based oilfield services company Baker Hughes Inc. (BHI) reported a higher U.S. rig count (number of rigs searching for oil and gas in the country) than before.
Rigs engaged in exploration and production in the U.S. totaled 658 in the week ended Dec 30, 2016. This was up by five from the previous week. In detail, the report shows that oil rigs in the U.S. increased by two, while the natural gas rig count rose by three. Last week, U.S. crude plays witnessed an increase in rig count from the prior week - marking the seventh consecutive weekly rig count increase.
Who Will Gain?
It is a well-documented fact that the state of Texas witnessed the highest rise in rig count - after seeing additions for three rigs - over the last week than any other major state. Oklahoma, on the other hand, added two more rigs.
The developments so far show that U.S. shale players have already started to gather in the oil patches to capitalize on the situation as oil is expected to improve further. With an increase in crude prices, U.S. energy companies will be able to sell the commodity at much higher prices and will likely garner more cashflows for shareholders.
Some U.S. exploration and production firms that stand to gain from the aforesaid developments are Sundance Energy Australia Limited SNDE , Abraxas Petroleum Corporation AXAS , Bill Barrett Corporation BBG , Comstock Resources, Inc. CRK and Concho Resources Inc. CXO . Sundance and Abraxas sport a Zacks Rank #1 (Strong Buy), while 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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