OPEC, Saudi Arabia, Iraq, and Iran Weigh on Crude Oil Prices
Will Crude Oil Glut Keep Putting Pressure on Crude Oil Prices?
OPEC’s record oil output
OPEC (Organization of the Petroleum Exporting Countries) played a vital role in contributing to the crude oil glut. OPEC’s member nations operate as a cartel. They control 40% of the global crude oil production. In the last meeting on June 5, 2015, OPEC maintained its collective output target of 30 MMbpd (million barrels per day) for the next six months in order to defend its market share by producing more crude oil. Likewise, OPEC produced 32.13 MMbpd of crude oil in June 2015—the highest since August 2012.
Saudi Arabia’s record production
Saudi Arabia produced 10.6 MMbpd of crude oil in June 2015, according to OPEC’s monthly report. This is Saudi Arabia’s highest crude oil output. Citigroup estimates that at this production pace, Saudi Arabia could hit 11 MMbpd in 2H15.
Iran’s nuclear deal
The nuclear accord between Iran and the global heavyweights suggests that the crude oil market could get flooded with more than 700,000 barrels of crude within six months of lifting the sanctions. The EIA estimates that Iran’s oil sanctions could drag crude oil prices lower by $5–$15 per barrel. Iran has 158 billion barrels of crude oil—the fourth-largest proved reserves in the world. Iran produced 2.8 MMbpd of crude oil in May 2015. Before the sanctions, it produced 4 MMbpd of crude oil. It also has 30–40 MMbbls of crude oil stored in the sea.
Iraq’s record oil exports
Iraq’s crude oil exports recorded an average of 3.06 MMbpd in the first 23 days of July 2015. The exports hit a three-decade high in April 2015. Iraq exported 3.077 MMbpd of crude oil in April 2015. The consensus of growing exports and output will continue to put pressure on the oil market.
All of these factors along with the US, Russian, Canadian, and Brazilian production will weigh on crude oil prices. These long-term oversupply concerns will impact oil producers’ margins like EOG Resources (EOG), Anadarko Petroleum (APC), and ConocoPhillips (COP). They account for 9.61% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is greater than 41% of their total production.
They also impact energy ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE).
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