As Turmoil in the Middle East Continues, What of Oil Oversupply?
Saudi Arabia may add to woes of crude investors
Saudi Arabia’s cost of crude extraction lies around $9.90 per barrel, whereas Russia’s (ERUS) and Iran’s costs of extraction lie around $12.6 and $17.3 per barrel, respectively. The costs include only operational and capital expenditure costs and were compiled by Rystad Energy.
Saudi Arabia has the benefit of its low-cost production and penetration into the US (SPY) crude oil market. Russia’s exports to North America account for a small portion of its total exports, and the United States does not import crude oil from Iran. If crude falls, it’s an advantage to Saudi Arabia in the market share war with US shale oil producers. Saudi Arabia’s fight to retain its regional leadership status is adding trouble to the crude market.
Saudi Arabia’s growing aggression in the Middle East has negatively affected crude oil prices since the execution of a Shiite cleric in early January 2016. Iran and Saudi Arabia have since entered a war of words, which has increased the possibility of a market share war.
Where everyone is fighting for market share, a rise in political tensions may increase oversupply concerns among investors.
Energy and production stocks fell
Energy and production stocks such as Occidental Petroleum (OXY), Chevron (CVX), and ExxonMobil (XOM) fell on a quarter-over-quarter basis in 4Q15 because of the plunge in crude oil prices. The graph above shows the performance of CVX from September 2015 to date.
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