Oil extends losses below US$40 as OPEC abandons production target

A regular OPEC meeting was held in Vienna on Friday.

For the first time in decades, OPEC even failed to agree to a production ceiling – previously at 30 million barrels per day (bpd) – due to a disagreement between Saudi Arabia and Iran.

The decision effectively leaves it up to individual members how much crude to pump and was a strong signal of OPEC’s eroding ability to act as a group in efforts to influence supply, demand -and prices.

In a u-turn on comments he made just days ago, Nigeria’s junior oil minister Friday told media at the December 4 Organization of Petroleum Exporting Countries (OPEC) meeting that renewed oil exports from Iran would not exacerbate global oversupply.

After Friday’s decision, “everyone does whatever they want”, according to Iranian Oil Minister Bijan Namdar Zanganeh, who estimated the global surplus at as much as 2 million barrels a day. And over the past year, prices have steadily fallen, now hanging around 2009 lows of $40-$45 a barrel. Discarding OPEC’s commitment to adhere to any particular limit may signal Saudi Arabia’s readiness to do exactly that. The ceiling of 30 million barrels a day, in place since 2011 and now abandoned as too rigid, is exception, Bloomberg said.

This time is going to be different from previous times when Saudi Arabia would take over Iran’s share of oil export as Iran was restricted by sanctions, economic analyst Mohammad Sadeqi said.

Barclays said that OPEC faced an “impossible trinity of achieving higher market share, higher prices and higher demand through a nominal target which members continue to breach”.

“It has been chose to keep the quota at its current, actual level”.

A report shows the world is already producing up to 2mn bpd more than it consumes now. With the price down near $40, they are having to sell assets to make up the difference.

It said that Russia’s output was at a post-Soviet record.

A continued decline in global oil prices could create a very challenging situation in countries that rely on oil money.

What is means for the market as OPEC goes ceiling less?

The impact on the markets has been a perceived lengthening of the period where oil prices will be low. “But from the viewpoint of federal budget revenues, there are certain risks, of course”.

While the price weakness has led to thousands of industry job losses, with major firms also scaling back future investment, it has proved good news for consumers and businesses – with falling fuel and other energy costs boosting spending power.

“Oil production in Russian Federation will decrease after all”, Associate Professor of the Higher School of Economics Oleg Anashkin told TASS.