Crude oil prices decline to fresh four-year low on OPEC decision not to cut output
On Thursday, Saudi Arabia blocked insistence of poorer OPEC members calling for production cuts, and sent benchmark crude oil to a fresh four-year low level.
On Thursday, despite insistence by poorer OPEC members on production cuts to put a stop to sliding oil prices globally, Saudi Arabia blocked their calls and thus benchmark crude oil declined to a fresh four-year low.
Brent oil price declined to $71.25, by over $6 per barrel, as there was no output ceiling change at the OPEC ministers’ meeting in Vienna, which was not in line with their long-standing abidance by price defense. As a result, the battle for market share between OPEC and non-OPEC members is promising to become harsher.
In the US, soaring shale oil production, coupled with lackluster economic growth in both Europe and China, have been impacting crude oil price since June, lowering it by around one third. The crude oil ceiling is 30 million barrels daily, exceeding OPEC estimates of next year’s oil demands by at least one million. The OPEC statement did not mention any forthcoming shrinking overproduction or any meeting on the ceiling before the next June meeting.
Low crude oil prices have hurt OPEC members like Venezuela and Iran, which are facing budget pressures but cannot introduce cuts themselves. OPEC yields one third of crude oil output globally. Gulf producers could weather the market share battle sometime further, as they have massive foreign currency reserves. Members without such reserves would be in a predicament, and so would producers outside the OPEC.
The Russian ruble, continuing its slide through this year, extended losses, and on Thursday traded over 2 percent lower compared to its previous close against the US dollar. Russia is already hit by acrimonious Western sanctions over the Ukraine issue, and to balance its budget it would need a $100-price per barrel of oil.
Should a price war wage, future US shale oil projects may become uncompetitive, owing to high production costs, so pressures on OPEC would be eased.
According to Ali Saleh al-Omair, Kuwaiti Oil Minister, OPEC would need to accept any oil market price. Another oil minister, Adel Abdel Mehdi of Iraq, envisages a floor of $65 to $70 per barrel. OPEC would be interested to withstand lower prices to hurt US oil development projects.
