Crude oil prices hammered on OPEC policy

OPEC’s decision has completely erased yesterday’s gains for WTI futures, which were largely bolstered by rumors of the group’s largest crude oil exporter, Saudi Arabia, to propose a production cut at the meeting. However, the situation was not helped by further strengthening in the dollar, as it rose to an eight months high. West Texas Intermediate, the US benchmark price for crude oil, lost 3 percent to open the day at $39.78 per barrel, falling below the $40 mark for the second time this week.

“Tehran does not want Saudi Arabia to lead the cartel and to decide that Iran is not allowed to increase its production and export volumes in the coming years”, he said. There is no fear of that now, as Russian Federation will not be attending the meeting.

OPEC on Friday did not set a new oil output ceiling, with major oil producers reluctant to cut the supply.

OPEC has also said that in 2016, demand for OPEC crude is expected to rise by 1.2 million barrels per day to average 30.8 million barrels per day for the year.

“While oil advanced (Friday)… there is really nothing much to cheer about”, said Bernard Aw, market strategist at IG Markets in Singapore.

“We have said on more than one occasion, we are willing to cooperate with anyone who can balance the market”, said Saudi Arabian oil minister Ali al-Naimi.

Emmanuel Ibe Kachikwu, left, Nigeria’s oil minister and OPEC president, and OPEC Secretary General Abdullah al-Badri arrive for a news conference after a meeting of OPEC oil ministers in Vienna, Austria, on Friday.

OPEC oil ministers have effectively scrapped their official output ceiling and agreed to keep producing above that level.

“Practically, there is now no ceiling for OPEC”, he said. Most analysts, however, say a collective cut is highly unlikely as most oil players are vying to secure market share amid low prices.

For its part, Iran has repeatedly said it would add 1 million barrels of oil to the market each day when economic penalties are lifted. OPEC’s position is that we are glad to see Iran recovering out of sanctions and back to the market place.

Some of those extra barrels will likely come from Iraq.

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 million barrels per day.

The strategy appears to have worked with many US producers closing rigs, canceling projects and lowering production.

“Given the present position of the economy of countries that are purchasing (oil) and the worldwide economy, we will retain production at current levels”, said Kachikwu.