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OPEC Oil Prices Hit Energy ETFs

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Hi, My name is Corey and I‘m with ETF Trading Research, today were

reviewing our recently published article…

OPEC Oil Prices Hit Energy ETFs

Last week, the members of Organization of Petroleum Exporting Countries or OPEC met. They decided to continue pumping oil at a record pace and let

OPEC oil prices fall as the supply glut widens.

The immediate reaction to the decision had a negative impact on oil prices. The

price of a barrel of WTIC crude oil plunged 5% to the lowest levels since

2009.

As a result, analysts are slashing earnings and valuations of oil and gas

companies. And oil and energy ETFs that hold these assets are being taken down

as well.

Why Does OPEC Want Lower Oil Prices?

OPEC’s decision to continue flooding the global market with more oil than it needs wasn’t unanimous. Many countries want

the cartel to cut back production to support oil prices.

But the kingpin of the cartel, Saudi Arabia, wants to protect their market

share from surging oil production in the US, Iraq, and Russia.

In short, they hope that keeping oil prices low will curb oil production from non-OPEC oil producers. Once they have

forced these producers out of business or at least force them to halt expansion,

then OPEC won’t need to cut back their production as much to support higher oil

prices. In short, this is a high stakes game of chicken… and they’re betting that they can outlast their upstart competition from

US shale oil and other oil producers.

Impact of OPEC Oil Prices and US Oil Production

Low oil prices are having a big impact on US shale oil producers. Many smaller US oil and gas companies have already missed bond payments or been forced

into bankruptcy.

According to the former head of oil firm EOG Resources, Mark Papa, "We are

about to see a pretty dramatic decline in U.S. production growth." US oil

production has peaked. It’s expected to fall from 9.6 mbpd to 8.6 mbpd in 2016.

Needless to say, a decrease in US oil production will be a major headwind

towards the US achieving energy independence.

Who Benefits The Most From Lower OPEC Oil Prices?

In the long run, the big winner from the price war will be major oil and gas

companies.

Companies like Exxon Mobil (XOM) and Chevron (CVX) have the resources and

financial stability to withstand a price war with OPEC unlike the smaller US oil

producers.

What’s more, many of these companies missed the boat on the initial wave of US shale oil production. As small companies falter the big boys will be there to pick up

the pieces for pennies on the dollar. Get started with you Oil ETF research.

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