Opec decides against cutting oil output

Oil prices fell on Friday after news that the Organization of the Petroleum Exporting Countries was planning to maintain its production near record highs despite depressed prices, as OPEC continued to guard its share of an oversupplied market.

The actual production level of the cartel varies constantly, since each member’s average output differs every month.

“They have abandoned the pretence that they are producing 30m barrels a day and formalised the decision taken a year ago to produce as much oil as necessary to preserve market share while leaving prices to the market place”.

Brent North Sea crude for January delivery, the global benchmark for oil, fell to US$43.00 a barrel in London, down 84 cents (1.9 per cent) from Thursday’s settlement.

“Now the Viennese OPEC family gathering is over, the music has stopped and they’re sweeping up, but nothing has changed – the oil production remains unchanged, the oil production quota remains divorced from real-world oil production, and the slightly dysfunctional OPEC family – like most families – has gone its separate ways”, said Christopher Wheaton, energy fund manager and analyst at Allianz Global Investors.

“I didn’t have any other expectation”, said Iran’s oil minister Bijan Namdar Zangeneh as he left the meeting.

Iraq’s oil minister echoed those sentiments, asking after the meeting why OPEC members should accept a production cap if non-OPEC oil producers do not have one.

“In terms of supply and demand, it was noted that non-OPEC supply is expected to contract in 2016, while global demand is anticipated to expand again by 1.3 mb/d”.

Robert Minter, a strategist at Aberdeen Asset Management Investment, said: “The meeting was a bit of a disaster”.

The re-entry of Indonesia into OPEC, after a seven-year break, and Iran’s plans to ramp up output as soon as Western sanctions on the country are lifted, will have a bigger influence on outlook, analysts said.

“There was some short covering before the announcement in case there was a production cut”.

Iran, which was once the second biggest oil producer in OPEC, has repeatedly stated that it is planning to increase its oil production by 500,000 barrels per day immediately after the sanctions are lifted, and by another 500,000 barrels per day within the following six months.

The strategy that has been employed by OPEC over the last few years as United States shale production has ramped up has been to push ahead and seek to both bring in as much revenue as possible by simply selling oil at prevailing market prices and hope to push out smaller, marginal producers as a result of these low prices created by an oversupplied market.

The Opec is committed to production of about 31.5mn barrels a day, Nigeria’s Minister of State for Petroleum Resources and Opec president Emmanuel Ibe Kachikwu said after the meeting.

“We need to look to non-OPEC members also to join us in this stability drive”.

Concerns about the pace of growth in China and the weak trajectory in the European economy have helped push crude oil markets toward the supply side as recovery is not enough to sop up the excess oil in production.