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OPEC: Why the Crude Oil Demand Could Slow Down

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OPEC’s monthly report 

OPEC (Organization of the Petroleum Exporting Countries) released it MOMR (Monthly Oil Market Report) on September 14, 2015. The report highlighted that crude oil demand growth could slow down in 2016—led by China and Brazil’s economic slowdown. The demand for OPEC crude oil could average around at 30.31 MMbpd (million barrels per day) in 2016. OPEC also projects that non-OPEC nations’ crude oil supplies could rise by 160,000 bpd (barrels per day) in 2016. However, the IEA (International Energy Agency) expects that crude oil production from non-OPEC nations could fall in 2016.

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OPEC production

The slowing US production and consensus of record production from OPEC will narrow the supply and demand in the oil glut market. However, mounting speculation of rising crude oil production from Iran, due to easing of western oil sanctions, could extend the oil glut market. Meanwhile, OPEC’s production rose by 13,000 bpd to 31.54 MMbpd in August 2015—compared to July 2015. Even at the current production levels, OPEC projects a global surplus of 1.23 MMbpd in 2016. Saudi Arabia is OPEC’s largest crude oil producer. It produced 10.27 MMbpd of crude oil in August 2015.

OPEC’s strategy of producing more crude oil in order to sustain market share has been working well for OPEC’s member nations. These nations have the lowest production cost compared to the peers like US shale oil producers. The current turmoil in the crude oil market will impact US producers like Anadarko Petroleum (APC), EOG Resources (EOG), and ConocoPhillips (COP) the most. Combined, they account for 9.61% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is more than 41% of their total production.

The volatility in the crude oil market also impacts ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and XLE.

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