Saudi Arabia and OPEC Add More Pressure to Crude Oil Prices
Inventory Data and the US Dollar Weigh Heavily on Crude Oil Prices
OPEC production
OPEC’s (Organization of the Petroleum Exporting Countries) members produce 40% of the global crude oil. OPEC has a 60% share in global crude oil exports. The group’s collective crude oil output was at 32.1 MMbpd (million barrels per day) in June 2015—compared to 31.4 MMbpd of crude oil in May 2015. This is highest OPEC output since August 2012. OPEC produced more than its quota of 30 MMbpd of crude oil for the past 13 months in a row.
OPEC’s last meeting was held on June 5, 2015. At this meeting, OPEC decided to maintain its collective output target of 30 MMbpd of crude oil for the next six months. The decision was made in order to defend OPEC’s market share in the global crude oil market and to offset the lower crude oil prices. The oversupply concerns will drag crude oil prices lower. Lower oil prices will negatively impact shale oil producers like Whiting Petroleum (WLL), Continental Resources (CLR), and Cabot Oil & Gas (COG). They also impact energy ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE).
Saudi Arabia is the world’s largest crude oil exporter. It’s also OPEC’s largest crude oil producer. Saudi Arabia produced 10.6 MMbpd in June 2015—compared to 10.3 MMbpd in May 2015. It produced 9.7 MMbpd in 2014. Citigroup’s consensus suggests that Saudi Arabia could produce 11 MMbpd in 2H15.
Likewise, Iran’s crude oil output could rise by 700,000 bpd to 1 MMbpd within six months of lifting the oil sanctions. Iran has 30–40 MMbbls in storage, according to Bloomberg surveys. The production cost of Iranian crude oil ranges between $5 and $10 per barrel, according to Platts’ estimates. Iran’s strategic location also adds a good value proposition for crude oil importers. As a result, Saudi Arabia, Iran, and OPEC will continue to put pressure on crude oil prices in the oil glut market.
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