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Why Is Saudi Arabia the King of the Crude Oil Market?

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Saudi Arabia’s crude oil production capacity

ANZ Banking Group estimated that Saudi Arabia would complete expansion work in Shaybah oilfield by June 2016. This will increase the capacity of the oilfield from 0.75 MMbpd (million barrels per day) to 1 MMbpd. This will help Saudi Aramco—the largest oil producer in Saudi Arabia—keep its production capacity at 12 MMbpd. Saudi Arabia is the largest crude oil exporter in the world along with Russia. ANZ Banking Group added that Kuwait’s crude oil production is expected to reach 3.15 MMbpd by June 2016.

Meanwhile, Saudi Arabia and Kuwait decided to resume crude oil production at the jointly operated 300,000 bpd (barrel per day) Khafji field. On April 25, 2016, Kuwait’s acting oil minister reported that an agreement was reached between Saudi Aramco and Kuwait.

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Saudi Arabia’s crude oil production in March 

Bloomberg surveys projected that Saudi Arabia’s crude oil production fell by 10,000 bpd to 10.2 MMbpd in March 2016—compared to the previous month. OPEC’s (Organization of the Petroleum Exporting Countries) monthly oil market report stated that Saudi Arabia’s crude oil production was flat at 10.12 MMbpd in March 2016—compared to the previous month. Its crude oil production hit a record level at 10.6 MMbpd in June 2015—the highest level since the 1980s. Read How Is OPEC Crude Production Trending ahead of Doha Meeting? for more on OPEC members’ crude oil production. For more on Iran—Saudi Arabia’s rival—read the next part of the series.

Impact on crude oil producers  

BMI Research reported that Saudi Arabia’s crude oil production is expected to rise to 10.3 MMbpd—compared to previous estimates of 10.2 MMbpd in the coming months. Citibank projects that Saudi Arabia is targeting 11 MMbpd of crude oil production in 2017. The International Monetary Fund expects that Saudi Arabia’s oil production will average 10.34 MMbpd in 2017—compared to 10.22 MMbpd in 2016. Mohammed bin Salman Ad-Saud, Saudi Arabia’s deputy crown prince, influences the decision making of Saudi Arabia’s oil market. This could drive oil prices. Saudi Arabia’s near-record production and the expectation of rising crude oil production due to the tussle for Market share will put pressure on crude oil prices.

Low crude oil prices impact major Middle East oil producers like Saudi Aramco, National Iranian Oil Company, Kuwait Petroleum Company, and Oman Oil Company. Prices also impact US oil producers like Warren Resources (WRES), Denbury Resources (DNR), Hess (HES), Bill Barrett (BBG), and Bonanza Creek Energy (BCEI).

ETFs and ETNs like the VelocityShares 3X Inverse Crude Oil ETN (DWTI), the Vanguard Energy ETF (VDE), the DB Crude Oil Double Short ETN (DTO), and the Direxion Daily Energy Bear 3x (ERY) are impacted by the ups and downs in oil prices.

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