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OPEC’s Output Hits a 3-Year High: Cues Crude Oil Collateral Damage

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Jul. 8 2015, Updated 4:05 a.m. ET

OPEC

OPEC (Organization of the Petroleum Exporting Countries) continued to produce more than the collective output target of 30 MMbpd (million barrels per day) in June 2015. Bloomberg data showed that OPEC produced 32.134 MMbbls in June 2015—up by 744,000 bpd (barrels per day) from May 2015. OPEC has been producing more than its target of 30 MMbpd for 13 consecutive months.

At the meeting on June 5, 2015, OPEC decided to maintain its collective output quota of 12 member nations at 30 MMbpd. This sent cues to the global crude oil market that the oil market will be flooded with more crude oil. ANZ Bank reported that OPEC’s production rose in June 2015 due to a rise in production from Iraq. The report also added that OPEC produced 32.1 MMbpd in June 2015. A Reuter’s survey estimated that the oil output in OPEC hit a three-year high of 31.60 MMbpd in June 2015—compared to 31.3 MMbpd in May 2015. OPEC’s strategy to defend the crude oil market share by producing more crude oil will continue to put more pressure on crude oil prices.

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Iran’s nuclear deal deadline was extended to July 7, 2015. The deal could lift Iran’s oil sanctions. Iran could supply an additional 750,000 bpd to 1 MMbpd within six months to one year if the sanctions are lifted. Iran is a member of OPEC. These additional supplies will add to OPEC’s basket of crude oil supplies. It could hit the long-term depressed oil market.

The EIA (U.S. Energy and Information Administration) reported that the US produced 9.71 MMbpd of crude oil in April 2015—the highest since the 1970s. The oil glut market will impact US shale oil players like Whiting Petroleum (WLL), EQT (EQT), and Marathon Oil (MRO). They will negatively affect energy ETFs like the Select Sector SPDR Fund ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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