OPEC fails to stabilise crude oil market as price drops further

The Organization of the Petroleum Exporting Countries on Friday elected to maintain current oil production levels despite apparent disagreement among members about the strategy.

OPEC production has climbed in recent months as members battle for market share, and non-OPEC producers, including Russian Federation and the U.S., have kept their output high despite low prices. The group also needs to prepare for increased shipments from Iran when worldwide sanctions are lifted.

OPEC maintained its policy of pumping near-record volumes of oil at a meeting on Friday, according to sources at the group, taking no steps to reduce one of the worst crude gluts in history which has driven down prices.

The situation puts more pressure on producers in the US where operators have slowed production at prolific shale plays that have tapped technology and new techniques, sending output to record levels earlier this year.

“In fact, in 2016, we anticipate a contraction in non-OPEC oil supply, ” it said further.

Brent futures fell 1% to $43.39 per barrel.

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.

With oil prices hovering near a six-year low, cash-strapped countries including Venezuela, Ecuador and Algeria are pressuring Saudi Arabia to cut production. The Saudis want to prevent Iran, their longtime enemy, from gaining market share or the profits that higher oil prices would deliver.

The Bank of Canada has estimated that overall capital spending in the industry will fall by 20 per cent in 2016 following a 40-per-cent drop this year.

OPEC’s secretary general Abdullah al-Badri said the cartel could not even agree on making routine projections for oil output next year because it could not predict how much oil Iran will add to the market as sanctions are withdrawn under a nuclear deal reached with world powers in July.

Saudi Arabian oil minister Ali al-Naimi said ahead of the meeting growing global demand could absorb an expected jump in Iranian production next year.

The official ceiling is, however, largely symbolic as countries produce above it. OPEC pumped 32.1 million barrels a day in November, exceeding its target for an 18th month, according to a Bloomberg survey of companies and analysts. There is global oversupply of 1.5 million to 2 million barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said on Friday, before the ministers met.

“In approving Indonesia’s resumption of its full membership in the organization, the conference extended a warm welcome to its delegation, headed by HE Sudirman Said, minister of energy and mineral resources of Indonesia”, OPEC secretariat revealed.

USA crude futures dropped over 2 percent, or 98 cents, to $40.10 after briefly dropping below $40.

“Hope for a near term catalyst (for US shale oil stocks) evaporates”, Wells Fargo analyst Roger Read said in a note to clients after news of the OPEC decision broke.

But at this time, “we felt comfortable that we just need to wait and watch”, Kachikwu said.