How Could Differences and Alternative Energy Sources Impact OPEC?



Factors impacting OPEC’s control over crude oil

OPEC (Organization of the Petroleum Exporting Countries) has become the battleground for two different nations—Saudi Arabia and Iran. One represents the major Suni power in the Middle East. The other represents the Shia-dominated country. Experts think that most of the civil war in the Middle East originated from the division of this inter-religion group. Investors must understand that although the unrest is based on the inter-religious aspect, it has a substantial impact on the economics of oil. A divided OPEC means the cartel will lose control over the oil supply. This could lower the oil prices. In contrast, a united OPEC means that OPEC countries have more control over oil prices.

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Since OPEC countries are the net exporter of crude oil, they’re an important factor in determining the crude oil price. Oil producers also face an imminent threat from non-fossil fuels. In this series, we’ll analyze how the civil war in Yemen and Syria impacts the crude oil market. We’ll also focus on Russia’s (RSX) involvement in the Middle East. This already heightened the tension among the regional leaders. The series also analyzes moving averages and analysts’ estimates for different energy streams. We’ll discuss clean energy companies that will help to correlate the above discussion with the stock performances.

Oil and gas industry at a multiyear low

The United States Oil (USO) fell to a multiyear low as of December 28. On a YTD (year-to-date) basis, it fell ~46.3%. Other upstream stocks that are operating with a production mix that’s greater than 90% in crude and are part of XOP fell by 57% on a YTD basis. This includes companies like Vaalco Energy (EGY), Kosmos Energy (KOS), and Denbury Resources (DNR). The above graph shows the YTD performance of the United States Oil Fund.

Other US (SPY)-based integrated energy companies like ExxonMobil (XOM) and Chevron (CVX) fell by 14.8% and 19.5% on a YTD basis.

In the next part, we’ will discuss OPEC’s price war with US shale oil producers. The price war has been backfiring.


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