Oil prices drop to near 7-year low after OPEC meeting

The price of the global benchmark dived below the critical threshold of $40 per barrel mark at 1:44 p.m. GMT on Tuesday to reach as low as $39.90 a barrel before 2:00 p.m. GMT. It was the lowest close since February 2009.

“If Brent holds below $40 a barrel, this would be another psychological blow for the buyers, which could lead to further falls as the sellers grow more and more in confidence”, said Gain Capital analyst Fawad Razaqzada.

Brent crude fell below $40 a barrel for the first time in nearly seven years after OPEC effectively abandoned any limits on crude output, prompting speculation that a record global glut will continue.

For the first time since early 2009, USA crude fell below $37 (34 euros) on Tuesday, dropping more than $1 from its last settlement on Monday.

Goldman Sachs analyst Damien Courvalin projected OPEC’s production in 2016 will remain modestly above the current level, at 31.8 million barrels per day, while that of Iraq will be slightly below its current level and Iran will see a modest growth in output.

“As a result of the collapse in oil and gas prices today, the market is anxious that you’re going to see less capital spending, you’re losing a lot of a good-wage jobs in the oil patch, and people are worrying that we’re going to see a snowball of defaults among high-yield energy issuers”, said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis.

On the positives however prices of petroleum products are expected to drop in the coming weeks following the slump in the prices of oil on the world market. For the majority of this year, OPEC production has eclipsed the ceiling by more than 1 million bpd in an apparent effort to squeeze out higher-cost USA shale producers. A mild, brief oil price bounce did emerge early Tuesday but wasn’t necessarily a sign of changing fortunes in the crude-trading space.

Poorer nations under the OPEC umbrella have been pushing for a decline in production rates, so that prices found support.

Crude oil prices gained back some ground at the start of trading Wednesday, as expectations of lower USA oil production balanced against long-term pessimism.

Ghana may be forced to review its revenue target for oil next year if the prices of the commodity on the world market continue to plunge.

The 13-member OPEC cartel took no action to shore up the market and observers said it appeared to be in disarray.