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Crude Oil Prices Tumble: Will Iran, Saudi Arabia Change Anything?

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Crude oil prices fall again 

March WTI (West Texas Intermediate) crude oil futures tumbled 5.9% and settled at $27.94 per barrel on Tuesday, February 9, 2016. Brent crude oil futures fell a mammoth 11% and closed at $30.32 per barrel. Prices fell for several reasons:

  • long-term oversupply concerns
  • rising US crude oil inventory
  • conflict of interest in OPEC (Organization of the Petroleum Exporting Countries) for a collective production cut

The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell by 5.3% and 10.3%, respectively. The SPDR S&P 500 ETF (SPY) was almost flat in Tuesday’s trade.

[marketrealist-chart id=1042087]

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EIA’s monthly drilling report 

The EIA (U.S. Energy Information Administration) published its monthly crude oil drilling productivity report on Monday, February 8, 2016. It reported that US crude oil production from key shale regions could fall by 92,000 bpd (barrels per day) to 4.9 MMbpd (million barrels per day) in March 2016 compared to February 2016.

The fall in production would be from the Eagle Ford, Bakken, and Niobrara shale regions. The slowing US crude oil production could benefit oil prices. But why do oil prices react to the slowing production data? We’ll cover that in the rest of the series. 

Iran and Saudi Arabia meeting

The speculation of a meeting between Iran and Saudi Arabia could support oil prices. Oil Minister of Iran Bijan Zangeneh stated that Iran is interested in discussing the depressed oil market with his Saudi Arabian counterpart. Iran might discuss price ceilings to support oil producers.

Meanwhile, the IEA (International Energy Agency) stated that these OPEC and non-OPEC nations’ collective production cut strategy is just a theory. The current situation doesn’t permit oil producers a coordinated production cut. For more on this, read Will Russia and OPEC Join Hands and Cut Crude Oil Production?

Volatility analysis 

Crude oil prices have fallen 25% in 2016. They have fallen more than 70% since June 2014 due to long-term oversupply concerns. The IEA warns that global oil oversupply will continue in 2016 and 2017. You can read more about the US crude oil, gasoline, and distillate inventory in the next two parts of the series.

The mammoth fall in oil prices will benefit oil refiners such as Western Refining (WNR), Marathon Petroleum (MPC), Alon USA Partners (ALDW), and Northern Tier Energy (NTI). But the fall affects the margins of oil producers such as Murphy (MUR), Chesapeake Energy (CHK), Concho Resources (CXO), WPX Energy (WPX), and PDC Energy (PDCE).

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