OPEC Won’t Cut Crude Output, Raises Ceiling; oil falls

The cartel is expected to continue with its policy of pumping flat out, even though prices for Brent crude LCOF6, +1.23%, the worldwide benchmark, have fallen to less than $45 a barrel compared with highs of $114 a barrel past year.Iaq’s oil minister, Adel Abdel Mahdi, has indicated his country intends to increase output levels in 2016, as OPEC fights to maintain its market share and drive competitors out of the market.

West Texas Intermediate crude for January delivery dropped 91¢, or 2.2%, to $40.17 a barrel at 11:56am on the New York Mercantile Exchange.

The price of Brent premium crude fell to around $43 a barrel in London futures trading, not far from a low last reached during the Great Recession in 2009.

During a long day – Friday’s 168th ministerial meeting was the longest for many years – very strong rumours emerged that Opec meant to increase its 30m bpd production ceiling to 31.5m bpd to effectively formalise the production that now exceeds it. These rumours turned out to be false and instead Opecc stunned the press room with its decision to dispense with an official production ceiling.

“We can not put a number now because Iran is coming, we don’t know when Iran will come, and we will have to accommodate Iran one way or the other”, said OPEC Secretary General Abdullah el-Badri. Venezuela, Algeria and Nigeria argued strongly that Opec’s production ceiling should be cut to support prices so the fact that it has been removed is a major blow to their prestige.

Back on Nymex, petroleum-product futures took their cue from the losses in oil.

The cartel’s official quota is 30mbpd, but the cartel’s total or actual output varies, since the production volume of its members change every month.

OPEC ministers ended their policy meeting in Vienna on a discordant note, unable to decide as a group how much it should pump in aggregate. Russian Energy Minister Alexander Novak said Thursday that the country doesn’t see a production cut as viable.

One place where production is projected to fall is the US where oil drillers have idled more than half the country’s rigs in the past year.

In terms of supply and demand, the Secretariat report showed that non-OPEC supply was expected to contract in 2016, while global demand is anticipated to expand again by 1.3 million barrels per day. In September, OPEC produced 31.57 million barrels a day, according to its own data.

After Friday’s OPEC decision “everyone does whatever they want”, said Iranian Oil Minister Bijan Namdar Zanganeh.

Saudi Arabia has lowered its oil prices in Europe, going after Russia’s market share in Sweden and Poland. The world is already producing up to 2mn bpd more than it consumes.

Oil prices have hovered near $US40 a barrel in recent weeks on ongoing concerns about the global oversupply of crude, which had sent prices plunging in late 2014.

“The stock-build will continue to weigh on the market, with prices unlikely to move beyond the current range until well into 2017”, Chris Bake, a senior executive at Vitol Group, the biggest independent oil trader, said December 2.