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OPEC Continues Its Mammoth Production, Impacts Crude Oil Prices

Gordon Kristopher

Crude Oil Prices Fall Again in the New Bear Market

(Continued from Prior Part)

OPEC output

OPEC (Organization of the Petroleum Exporting Countries) produced 32.107 MMbpd (million barrels per day) of crude oil in July 2015, according to the preliminary estimates from Bloomberg. The data compiled from Bloomberg showed that the crude oil output fell by 362,000 bpd (barrels per day) from June 2015. OPEC produced 32.469 MMbpd of crude oil in June 2015—the highest since August 2012. The marginal fall in production was due to the fall in production from Iraq.

OPEC’s role in the crude oil market

OPEC plays a vital role in the global crude oil market. OPEC’s member nations operate as a cartel. They control 40% of the global crude oil production. On June 5, 2015, OPEC decided to continue with its group’s output target of 30 MMbpd for the next six months in order to defend its market share. As a result, OPEC has been producing 1–2 MMbbls more crude oil than its output quota. The record production is leading to a surplus. It’s negatively impacting oil prices.

US upstream players like EOG Resources (EOG), Anadarko Petroleum (APC), and ConocoPhillips (COP) are impacted by the lower crude oil prices. Combined, these companies account for 9.61% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil mix output is greater than 41% of their total production. ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE) are also impacted by lower crude oil prices. 

Saudi Arabia’s output

OPEC’s largest producer is Saudi Arabia. Its output rose by 70,000 bpd to 10.57 MMbpd in July 2015 from the previous month, according to Bloomberg estimates. This is Saudi Arabia’s highest crude oil output. Citigroup estimates that at this output pace, Saudi Arabia could hit 11 MMbpd in 2H15. 

Iraq’s massive oil exports

Iraq’s crude oil production fell by 194,000 bpd to 4.194 MMbpd in July 2015—compared to June 2015. Oil exports were more than 3 MMbpd in July 2015. The exports hit a three-decade high in April 2015.

Iran’s nuclear accord

Iran’s crude oil output was at 2.85 MMbpd of crude oil in July 2015. Before the western crude oil sanctions, Iran produced 4 MMbpd of crude oil. It also has 30–40 MMbbls of crude oil stored in the sea. The nuclear deal between Iran and the global heavyweights raises concerns that the crude oil market could get flooded with more than 500,000 barrels of crude within a week of lifting the sanctions.

All of these OPEC member nations could extend the crude oil glut market and put more pressure on crude oil prices.

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