We covered OPEC’s (Organization of the Petroleum Exporting Countries) production in the previous part of this series. Now let’s explore how OPEC may respond to remain sustainable in the low crude oil market. OPEC held its last meeting on December 4, 2015, in Vienna. The outcome of the meeting was that OPEC abandoned its collective production target of 30 MMbpd (million barrels per day). Interestingly, OPEC produced 32.1 MMbpd of crude oil in November 2015.
OPEC controls 40% of global crude oil production and has around 81% of global crude oil reserves, as of 2014. OPEC also has the lowest break-even costs and production costs. Low operating costs encourage OPEC to produce oil at record levels. That’s why OPEC and Saudi Arabia decided to abandon output quotas for its member nations. This could be a blessing in disguise for US shale operators.
OPEC’s intentions are very clear: it wants to capture long-term market share and put US and Canadian shale operators out of business. Thus, OPEC will continue to produce more in 2016, which will be another year of low oil prices.
The exponential fall in oil prices also affects oil producers like Noble Energy (NBL), ExxonMobil (XOM), PetroChina (PTR), Royal Dutch Shell (RDS.A), ConocoPhillips (COP), Total (TOT), and Chevron (CVX). They also affect ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares US Oil & Gas Exploration & Production ETF (IEO), and the PowerShares DWA Energy Momentum Portfolio (PXI).