The faintest hint from oil producing nations on possibly curbing oil output had world markets cheering yesterday. However, the optimism was short-lived as the fundamental picture of oversupply remains unchanged.
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Markets were abuzz with speculation after reports indicated that Saudi Arabia and Russia have expressed theoretical interest in cutting supplies. Russia’s second largest oil company stressed the urgent need to cut production while OPEC’s call for cooperation from other oil exporting nations also beefed up hopes of a longer term resolution to the oil glut.
There is as of yet no confirmation that oil exporting nations will strike a deal though, giving no real direction to the markets. Kuwait has stated that any output cut is unlikely until and unless all oil producing nations work in tandem.
On the back of these developments, oil is witnessing steep price swings, touching a high of $32 per barrel yesterday. Today, Brent crude was trading near $31.14 while U.S. Oil futures for March delivery slipped 3.28% to $30.40.
U.S. oil companies cut spending
Amidst the oil weakness, three of the largest U.S. shale oil companies, Hess Corp (NYSE:HES), Continental Resources, Inc (NYSE:CLR) and Noble Energy, Inc (NYSE:NBL) have significantly trimmed their 2016 capital spending budget, with cuts ranging between 40% to 66%. One has even stated that profits could come only when oil rebounds by more than 20%. This has led analysts to project a spending cut of 38% by the sector as a whole for 2016.
The U.S. government estimated that domestic crude production will decline by nearly 700,000 barrels per day by the end of 2016 to 8.5 million barrels per day.