The 12 country cartel decides to maintain production—as expected

As many experts predicted, OPEC decided to maintain its production ceiling at 30 million barrels per day (MMBOPD) at its June 5 meeting held in Vienna Austria. Brent and West Texas Intermediate crude oil prices both fell 1% following the news, according to a note from Baird Equity Research.

In OPEC’s press release following the meeting, the group said “the conference resolved to maintain the 30 MMBOPD ceiling and urged Member Countries to adhere to it.” Some analysts expected OPEC to raise its production cap as the cartel has exceeded its self-imposed limit for the past 12 months.

U.S. jobs still balancing out

The U.S. oil and gas industry took a hit following OPEC’s last meeting in November 2014, when the group initially decided to maintain production. The decision set prices into a downward spiral that forced many companies to cut costs, often through trimming down their workforce.

The Bureau of Labor Statistics (BLS) released its monthly employment assessment today as well, showing that oil and gas extraction employment continued to trend lower in the month of May. According to the BLS, employment in oil and gas extraction totaled about 194,000, down 0.5% from April. Jobs in mining other than oil and gas were up slightly at approximately 203,000, 0.2% higher than the month before.

Analyst Commentary

Ethan Bellamy, Baird Equity Research 06.05.2015
OPEC's maintained 30 MMbbl/d quota and consistent output
above that on growing rig count reinforces the global oversupply situation given comparable
expected resiliency in US production. Despite an in-line announcement and better
underlying tone, WTI and Brent are exhibiting increasingly negative reactions after muted
initial responses, both -1.0% at last check. We remain cautious on crude pricing given this
persistent oversupply dynamic coupled with various technical headwinds, resulting in a
challenging backdrop for energy stocks near term.

William Featherston, UBS Global Research 06.05.2015
The 167th ordinary OPEC meeting concluded in Vienna with the cartel maintaining its
30 mb/d production quota despite weak prices and an over-supplied market. This
outcome was expected and is consistent with the policy shift established at its last
meeting in November, where OPEC (and Saudi Arabia in particular) abandoned its
historical role of defending price in favor of fighting for market share. OPEC produced
31.2 mb/d in April and we expect OPEC and IEA data disclosed next week to show
volumes again exceeded 31 mb/d. The next OPEC meeting is scheduled for Dec 4th.

Pavel Molchanov, Raymond James 06.05.2015
Today we all found out whether one of the world's most secretive organizations would turn over a new leaf and head in a different direction. No, not FIFA - that was on Tuesday. And no, not the Fed - that will be on June 17. We are, of course, talking about OPEC. While Chinese hackers this week (allegedly) targeted the U.S. government rather than OPEC's secret files, even without having a fly on the wall in Vienna, yesterday we thought it was entirely safe to predict that OPEC would keep the status quo. And, in fact, OPEC maintained its production ceiling today (30 MMbpd), with no discernible internal disagreement to this decision. Yesterday, WTI and Brent plummeted 2.6% ahead of the OPEC meeting. The S&P 500 dropped 0.9%, following weak U.S. productivity data, as well as Greece's decision to defer a payment to the IMF. Energy stocks underperformed: the EPX and OSX traded down 1.7% and 1.4%, respectively, on the back of oil's decline. Ahead of the open, S&P futures are trading down modestly, while WTI and Brent are edging up following the OPEC decision.

Roger Read, Wells Fargo Equity Research 06.05.2015
Given the vast majority of opinion we have surveyed (and our own published view) expected no change from OPEC, we do not expect any material adjustments in the equity or oil markets on this announcement. OPEC held its first meeting this week following its November decision to maintain production and not defend a specific oil price or price range. Crude oil prices have bounced substantially from their Q1 2015 multi-year lows and there are signs of improving demand worldwide. This provides OPEC with a defendable rationale that its strategy of ''patient heal thyself'' is working.  

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