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How Did Saudi Arabia’s Message Impact Oil Investors?

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Crude oil is a free market

Saudi’s deputy crown prince indicated that crude oil is a free market. Saudi Arabia may not be interested in returning to the Organization of the Petroleum Exporting Countries mechanism to control prices. He also said that the rise in crude oil (UCO) prices could impact the overall budget estimate for the kingdom. However, Saudi Arabia is confident that it can revive its economy with or without higher oil prices.

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Oversupply concern

Since Saudi Arabia’s prince is confident about reviving the country’s economy with or without rising oil prices, it could indicate the continuation of the current oversupply situation. Since mid-2014, Saudi Arabia increased its supply to the global oil market. This is the main reason behind more than a 70% fall in crude oil prices between June 2014 and February 2016. The following graph shows the West Texas Intermediate crude (USO) price with respect to a change in Saudi Arabia’s crude production.

Upstream stock might be impacted

Upstream stocks that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and are highly correlated with crude oil during the last two-month rally are Abraxas Petroleum (AXAS), Cobalt International Energy (CIE), Matador Resources (MTDR), and Apache (APA). Read Crude Oil Is near $40: Which Upstream Stocks Will Be Impacted? to learn more.

  • Abraxas Petroleum operates with a 65.9% production mix of crude oil.
  • Cobalt International Energy and Matador Resources operate with a 75% and 49.3% production mixes of crude oil.
  • Apache operates with a 53.1% production mix of crude oil.
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