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Analyzing OPEC’s Power Plays in the Crude Oil Market

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Aug. 24 2015, Updated 7:06 p.m. ET

OPEC’s production

OPEC (Organization of the Petroleum Exporting Countries) member nations aren’t in the mood to cut the group’s collective crude oil output. The crude oil output from OPEC could hit 33 MMbpd (million barrels per day) by the end of 2015 or early 2016. This would be supported by the possible lifting of oil sanctions from Iran. The crude oil output from OPEC was at 32.107 MMbpd in July 2015. OPEC produced 32.469 MMbpd of crude oil in June 2015—the highest since August 2012.

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OPEC’s meeting

On June 5, 2015, OPEC held its last meeting. OPEC’s member nations decided to maintain the group’s collective target of 30 MMbpd for the next six months in order to defend its market share. So, OPEC has been producing more crude oil than its group’s collective target. The record production from the Middle East is adding pressure to crude oil prices.

The falling crude oil prices are impacting oil producers like Hess (HES), EOG Resources (EOG), and Anadarko Petroleum (APC). They account for 8.45% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil output mix is more 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 falling crude oil prices.

OPEC’s production will continue to rise due to mammoth production from Saudi Arabia, Iraq, and Iran. All of these OPEC member nations could extend the crude oil glut market by producing more crude oil. The lower production cost and break-even cost of the Middle East countries might have more comfort compared to the high-cost producers in the US. The Saudi Arabian countries are also scaling up their refinery capacity. This means that they would sell the refined form of the crude oil. This would curb their loses due to the falling oil prices.

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