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OPEC’s Unplanned Supply Disruption Impacts Oil Prices

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OPEC member nations 

Iran, Iraq, Syria, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Oman, and Yemen are OPEC (Organization of the Petroleum Exporting Countries) members. OPEC was formed in 1960. OPEC countries produce 40% of the world’s crude oil. To learn more about the bearish catalysts of oil production, read Saudi Arabia’s Crude Oil Production: Key for the Global Oil Market and OPEC Crude Oil Production Is Breaking Records.

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OPEC’s unplanned supply disruption

OPEC members like Libya and Iran were the major contributors of unplanned supply disruptions in 2015. However, scaling up production from Iran would curb the supply disruptions from OPEC in 2016. The fall in supply disruptions from OPEC member nations will add to the global oil market glut. This would extend the bear market and negatively impact oil prices. OPEC supply disruption fell from 2.8 MMbpd (million barrels per day) in December 2015 to 1.8 MMbpd in January 2016. Read more about global supply disruptions in the next part of the series.

Record low oil prices will impact oil producers like Hess (HES), Energen (EGN), Laredo Petroleum (LPI), and Pioneer Natural Resources (PXD). In contrast, lower oil benefits refiners such as Valero Energy (VLO), HollyFrontier (HFC), Marathon Oil (MPC), and Phillips 66 (PSX).

Falling supply disruption means more production. More production means more supplies. More supplies mean more stocks in the global oversupplied market. So, it also benefits oil and gas storage and transportation companies such as Williams Companies (WMB) and Spectra Energy (SE).

ETFs and ETNs like the Vanguard Energy ETF (VDE), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the VelocityShares 3 x Long Crude Oil ETN (UWTI), the SPDR S&P Oil & Gas Equipment & Services (XES), and the First Trust Energy AlphaDEX ETF (FXN) are also influenced by the rise and fall in oil and gas prices.

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