OPEC rejects production cuts, braces for lower prices

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.

On the New York Mercantile Exchange, West Texas Intermediate dropped 1.8% at $36.97.

The decline in oil prices started when the market was flooded with an excess in supply of American shale oil previous year.

Oil prices have been falling steadily since a meeting of the oil producing cartel OPEC on Friday. “There was somewhat more positive data, but OPEC is not going to support the market and I think there’s a high probability that we will break through the lows of 2008”, said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

Brent for January dropped $2.27, or 5.3 percent, to settle at $40.73 a barrel on the London-based ICE Futures Europe exchange on Monday. Some forecasters now see the possibility of oil prices dropping as low as $20 a barrel.

Rather than cut supply to boost prices, OPEC has been aggressively pumping oil in an effort to steal back market share.

Opec’s output of more than 30 million bpd has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure, especially small-sized United States shale drillers that have piled up large amounts of debt.

Unemploymentdata.com, citing energy industry consultant Graves & Co., says that oil and gas companies have fired a quarter of a million employees since prices slumped … and that’s just the beginning.

The Organization of the Petroleum Exporting Countries – which pumps about 40 percent of the world s crude oil – decided on Friday against cutting output to raise prices. According to banks such as Goldman Sachs, that scenario is becoming increasingly likely as global oil stockpiles are bursting at the seams, with some even predicting the world is close to running out of storage space.

The decision by the OPEC oil producers grouping last week to maintain its lofty production levels continues to weigh on a market already awash with supplies as traders fix their sights on other developments that could influence prices.

Analysts said the market could be primed for another retreat following Wednesday’s release of USA oil inventory data.