The Latest Data Shows That the Oil Rally Is Going to Continue

Oil prices have rallied impressively so far in 2019, and the latest reports from around the globe show that the good times are going to continue.

According to Bloomberg data, WTI oil is now trading at nearly $63 per barrel, while Brent crude has touched nearly $70 per barrel. This is a terrific turnaround as WTI crude was languishing at just over $42 per barrel in December last year, while Brent was hovering at just over $50 a barrel at the same time.

OPEC Sticks to Its Pledge

The combined production of all 14 OPEC nations came in at 30.4 million barrels per day in March, a drop of 280,000 barrels per day as compared to February 2019 levels.

Such a rally is a result of the steps taken by major oil producers to curtail production. For instance, OPEC’s oil output for the month of March 2019 was the lowest seen since February 2015. According to a Reuters survey, the combined production of all 14 OPEC nations came in at 30.4 million barrels per day in March.

This represents a drop of 280,000 barrels per day as compared to February 2019 levels. For comparison, OPEC production for the month of February was down by 300,000 barrels per day to 30.68 million bpd. A big reason why OPEC’s production is falling so consistently is that Saudi Arabia is reducing its output by a bigger margin than it is required to as a part of the supply cut deal.

OPEC and its allies had pledged to reduce production to the tune of 1.2 million barrels per day in the first six months of 2019. Saudi was supposed to cut its output by 322,000 bpd as compared to its output in October last year. But the compliance levels to the pledged production cuts clearly indicate that members are doing more than enough to keep the supply in check.

Eleven members of OPEC reportedly had a compliance rate of 135% to the pledged cuts for the month of March, a substantial jump over February’s 101% compliance. The good part is that OPEC countries are keeping a handle on production even though we are three months into the scheduled cuts.

But this isn’t the only positive for oil prices, as output at another key oil-producing nation has dropped of late.

U.S. Oil Production Starts Declining

U.S. oil production has been trending higher for the past year, hitting a record 11.96 million barrels per day for the month of December 2019. However, a closer look suggests that U.S. oil output has started trending lower as January output came in at 11.87 million barrels per day.

Lower production in the Texas area played a key role in keeping a lid on U.S. oil output during January. Looking ahead, it is expected that infrastructure-related bottlenecks in the Permian basin, which is the largest shale oil area in the U.S., will keep output under control for the first half of 2019. More specifically, it is being said that the lack of pipelines in western Texas and southeastern New Mexico areas will force producers to keep a lid on production.

Oil prices can continue rising in the future on the back of supply constraints across the globe so it is a good time to take a closer look at these three oil and gas stocks that are well-placed to take advantage of a surge in prices.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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