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OPEC Is Sidelined: Is Crude Oil a Free Market Now?

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OPEC’s crude oil output

OPEC (Organization of the Petroleum Exporting Countries) is considered a swing producer of crude oil. It produced 32.107 MMbpd (million barrels per day) of crude oil in July 2015. It produced 32.469 MMbpd of crude oil in June 2015—the highest since August 2012. The current turmoil in the crude oil market could also put pressure on OPEC’s member nations. The mounting speculation of OPEC producing 33 MMbpd by the end of 2015 or early 2016, led by Iran, is also adding pressure to the crude oil market.

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However, the non-OPEC crude oil and liquid fuel production from the US, Russia, and other countries are playing the spoilsport in the crude oil market. The non-OPEC countries produced 57 MMbpd of crude oil and other liquid supplies in 2014—compared to the global production of 93.32 MMbpd. However, OPEC controls almost 40% of the global production. The US, Russia, Brazil, Mexico, and China produce 40 MMbpd of crude oil. That’s more than OPEC’s group target.

Oil market’s share strategy

The surge in OPEC and non-OPEC production has led to the collateral damage of crude oil prices. Many say that it’s the tug-of-war between the US and Saudi Arabia for market share that has led to the fall in crude oil prices. The true picture could be that OPEC could foresee the oil market crash. They wanted to offset the oil market crash with more crude oil in order to sustain business and generate revenue. They might also increase their downstream business segments and balance the upstream losses. They might also want the free oil market to deprive the high-cost producers so that they can stand tall when the oil market has bottomed out. OPEC has the lowest breakeven cost compared to other oil producers. Countries like Iran have the best strategic locations for oil imports.

The mammoth fall in crude oil prices is negative for shale oil producers like EOG Resources (EOG), Concho Resources (CXO), and Laredo Petroleum (LPI). Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) are also impacted by falling crude oil prices.

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