Saudi Arabia’s crude oil production  

A Reuters survey estimated that Saudi Arabia’s crude oil production fell by 150,000 bpd (barrels per day) to 10,550,000 bpd in September 2016—compared to August 2016.

Saudi Arabia’s crude oil production hit an all-time high in August 2016. The summer cooling season drives the demand for domestic crude oil. To learn more, read Saudi Arabia: Weather Will Be a Key Demand Driver of Oil in 2H16. As a result, production rose due to higher export requirements and demand.

Will Saudi Arabia’s Crude Oil Production Strategy Work?

Saudi Arabia and oil producers’ meeting

Saudi Arabia is the largest crude oil producer and exporter among OPEC (Organization of the Petroleum Exporting Countries) members. Saudi Arabia depends on crude oil export revenue to meet its budget expenses. Saudi Arabia already used 150 billion of foreign exchange reserves. So, it needs high crude oil prices, which would narrow its budget deficits.

Any production cuts by Saudi Arabia and OPEC could be offset by a rise in production from Iran, Nigeria, and Libya. Saudi Arabia’s role as a swing producer will also have a limited impact on crude oil prices due to the rise in crude oil production from non-OPEC producers like Russia, the US, Brazil, and Mexico in the last few years. As a result, the oversupplied market could last longer. It will keep a lid on prices. Lower crude oil prices will have a negative impact on oil producers such as Warren Resources (WRES), W&T Offshore (WTI), and SM Energy (SM).

The rollercoaster ride in crude oil prices also impacts ETFs and ETNs such as the VelocityShares 3x Long Crude Oil ETN (UWTI), the United States 12 Month Oil ETF (USL), the Fidelity MSCI Energy ETF (FENY), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

In the next part of this series, we’ll look at how Iran’s crude oil production could weigh on crude oil prices.

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