Why Did Crude Oil Prices Fall after OPEC’s Meeting?
OPEC’s Decision and the Stronger Dollar Pressured Crude Oil Prices
OPEC’s crude oil demand
In its monthly oil market report released in November, OPEC (Organization of the Petroleum Exporting Countries) forecasted its crude oil demand for 2016. It expects the demand to rise by 1.2 MMbpd (million barrels per day). It should average 30.8 MMbpd.
OPEC’s crude oil supply
In its report in November, OPEC stated that according to secondary sources its crude oil production was ~31.5 MMbpd in October.
OPEC’s meeting
As we noted from the above data, the current production levels are higher than the estimated demand for next year. OPEC’s meeting was held in Vienna on December 4. OPEC’s members decided not to cut the production rate. It will continue with the current production capacity of ~31.5 MMbpd.
OPEC’s decision will lead to excess crude oil supplies of about 2 MMbpd in the market. When the demand is less than the production, it will impact the prices of WTI (West Texas Intermediate), Brent, and other benchmarks. So, the crude oil prices react to the outcome of OPEC’s meeting.
In the next part of this series, we’ll discuss WTI price movements in more detail.
What’s the impact?
The crude oil market isn’t balanced with the long-term oversupplies. Crude oil prices fell more than 60% compared to the prices last year. However, OPEC’s members likely won’t go for production cuts. This has a negative impact on crude oil producers’ revenue all over the world including US oil producers like ConocoPhillips (COP), Apache (APA), Occidental Petroleum (OXY), and EOG Resources (EOG).
ConocoPhillips accounts for 3.5% of the Energy Select SPDR ETF (XLE).
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