1 Important Development In The Oil & Gas Industry Investors Should Know: Russia To Curb Output

The oil and gas industry is important to Singapore in many different ways.

We are one of the world’s three largest export refining centres for oil. According to data in 2014, the oil and gas equipment and services sector employed over 10,000 workers here. In the stock market, companies with multi-billion-dollar market capitalisations such as Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51) have fortunes that are tied to the price of oil.

These could make it important for investors to track developments in the oil and gas industry.

One recent key development is Russia’s decision to join OPEC (Organisation of the Petroleum Exporting Countries) in cutting their output of crude oil. Russia is one of the world’s largest producers of crude oil, so decisions it makes with regard to its output can affect the global oil industry.

Russia’s latest move also caused oil prices to rally; Brent crude LCOc1 actually hit a one-year high on Monday after Russia announced its intentions.

But before anyone thinks oil prices will now only move in one direction (up), it’s worth considering the possibilities of new big oil field discoveries and the non-adherence to committed oil production cuts by OPEC members or Russia. These have the potential to increase the supply of oil and thus exert downward pressure on oil prices.

Yesterday, the International Energy Agency (IEA) in the US said that the world would still have an oversupply of oil even in 2017 if members of OPEC renege on their promise to cut their output of oil.

Saudi Arabia is a very important member of OPEC and it had previously refused to cut output, likely out of fear of losing marketshare. But, the sharp fall in oil prices over the past two years (oil prices were over US$100 per barrel in mid-2014; they are now around US$50) has caused financial hardship for all oil producers, according to the IEA.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.