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Crude Oil Producers’ Role in Global Oversupply: Will It Continue?

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Crude oil producers 

The key crude oil producers that contributed to the global crude oil oversupply were the US, Iraq, Saudi Arabia, Brazil, and Canada. The US crude oil production rose by 700,000 bpd (barrels per day) to 9.4 MMbpd (million barrels per day) in 2015—compared to 2014. Read Is $40 the New $70 for Shale Crude Oil Producers? to learn more about US crude oil production. Iraq’s crude oil production, along with liquid fuels, rose by 700,000 bpd to 4 MMbpd in 2015—compared to 2014. Iraq is OPEC’s (Organization of the Petroleum Exporting Countries) second-largest crude oil producer. Iraq’s oil consumption fell marginally in 2015. This also contributed to oversupply in 2015. As a result, all of the crude oil production increase was exported to international markets.

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Saudi Arabia, Brazil, and Canada’s crude oil production 

Saudi Arabia’s crude oil production rose by 300,000 bpd in 2015. To learn more about Saudi Arabia’s production, read Did Saudi Arabia Keep Its Word and Freeze Crude Oil Production? and Why OPEC’s Crude Oil Production Fell in February 2016. Likewise, Brazil and Canada’s crude oil production rose by 200,000 bpd and 100,000 bpd in 2015, respectively. The rise in production growth of crude oil in the oversupplied market led to the collateral damage of crude oil prices.

The higher break-even costs and production costs from US and Canada’s shale oil producers will see oil production fall in 2016 and 2017. For more information on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion and Crude Oil’s Total Cost of Production Impacts Major Oil Producers. Political uncertainty, corruption, and lower oil prices will lead to a decline in Brazilian oil production. To learn about the historic deal, read Why Crude Oil Prices Fell despite the OPEC and Non-OPEC Deal. It will see Saudi Arabia and Iraq freeze crude oil production at January 2016 levels. So, we could see crude oil production decline in the coming years. In the next part of this series, we’ll discuss how Iran will play the crude oil market.

The 12-year low crude oil prices impact the margins of national and international oil producers like Chevron (CVX), ExxonMobil (XOM), Royal Dutch Shell (RDS.A), Saudi Aramco, Total (TOT), Petrobras (PBR), PetroChina (PTR), and BP (BP). In contrast, the low prices benefit oil refiners like Valero Energy (VLO) and Northern Tier Energy (NTI).

ETFs and ETNs such as the iShares Global Energy ETF (IXC), the VanEck Vectors Oil Refiners ETF (CRAK), the United States Oil Fund (USO), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the Vanguard Energy ETF (VDE), and the iShares U.S. Energy ETF (IYE) are also influenced by the ups and downs in oil prices.

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