OPEC’s members aren’t willing to cut the production
Like in any other cartel, OPEC’s (Organization of the Petroleum Exporting Countries ) members want to maximize their revenue from crude oil exports. The members knew that an upside in crude oil isn’t likely because it gives US shale oil producers a chance to take advantage. It could result in a loss of market share for OPEC members.
Crude oil near $40 isn’t economically feasible for US shale oil producers to extract and sell it in the market. OPEC doesn’t want to reduce the production. The volume is the only factor that can drive OPEC’s revenue at lower energy prices. Most of OPEC’s member countries aren’t able to finance their fiscal deficit, so they aren’t willing to cut the production.
The above chart shows the journey of OPEC’s market share with crude oil prices from 1965 to 2014.
Iran’s oil minister Bijan Namdar Zangeneh said that “We hope an increase in oil-market demand, on one hand, and a dropping trend in production or drop in the increase in production, as seen and said by non-OPEC producers, will exert less pressure on prices.” This shows that members aren’t willing to reduce the existing level of production.
US-based companies with high exposure to crude oil
US-based (SPY) companies like Kosmos Energy (KOS) and Denbury Resources (DNR) fell by 1.8% and 9.8% on December 4, 2015. These companies are operating with a crude oil production mix that’s greater than 90%. However, downstream operators like Tesoro (TSO) rose 1.9%. The United States Oil (USO) fell by 2.4%. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell by 2.7%.