Oil prices hit seven-year low on Opec inaction

Despite oil prices plunging by more than 60 per cent in 18 months, OPEC kingpin Saudi Arabia and the cartel’s other Gulf state members have defied calls to reduce output – in a year-long strategy of attempting to preserve market share and fend off competition from non-OPEC and world leading producers Russian Federation and the USA.

Crude oil prices are off about 4 percent for December and 36 percent lower for Brent than at this time past year.

The poorer members of the Organization of Petroleum Exporting Countries have been putting pressure on its wealthier members, led by Saudi Arabia, to curb production.

Brent futures fell $1.65 to $41.35, after sliding to$41.20, their lowest since March 2009.

Heading the country’s delegation to the Organisation of Oil Exporting Countries ministerial meeting in Vienna on Friday, Al Mazrouei predicted a growth in demand by 1.3 million barrels per day in 2016.

Although the Saudis can claim a partial victory over the US shale-oil boom, Russia’s production continues to exceed expectations, and world oil stockpiles are at record levels.

The stronger dollar has also weighed on crude producers, as oil is priced in dollars. Obviously, the price movement from now on will depend on the global economic recovery, particularly in Europe and the emerging countries, which are essential to ease the glutted global oil markets.

“The oil market anticipated Opec’s decision, and the countries with an excess of supply are responsible for the consequences”, Bijan Zanganeh was quoted as saying by Iran’s Shana news agency.

Until there is a significant reduction in production or increase in demand, many analysts expect prices to languish near $40 per barrel or lower.

OPEC, at its December conference in Vienna, has taken the decision simply to allow each of its members to produce as they will. Is it the lowest cost for producing one barrel of conventional oil, which is below $10, or is it the current oil price of $45?

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.

Senior oil official Amir Hossein Zamaninia said last week Iran hopes to bring an extra 500,000 barrels on the market by early next year. Instead they are expected to pump oil vigorously to protect their market share.

Now the organization says it will keep pumping as much as it does now – about 31.5 million barrels a day – effectively endorsing limitless output.