Oil tumbles more than $6 as OPEC keeps output high

LONDON: Brent crude oil plunged more than $6 a barrel, the sharpest one-day fall since 2011, after OPEC decided not to cut production despite a huge oversupply in world markets.
Asked whether the oil producer group had decided not to reduce production, Petroleum and Mineral Resources Minister Ali Al-Naimi said: “That is right.”
Oil prices have fallen by more than a third since June as increasing production in North America from shale oil has overwhelmed demand at a time of sluggish global economic growth.
Ministers from the Organization of the Petroleum Exporting Countries had been discussing at their meeting in Vienna whether to agree a production cut in an attempt to rebalance the global oil market.
Benchmark Brent futureswere down by $4.75 a barrel at $73.00 by 1640 GMT, after hitting a four-year low of $71.25 a little earlier in the session. The contract was on track for its biggest monthly fall since 2008.
US crude was at $68.90, down $4.79, after hitting its lowest point since May 2010 at $67.75.
Kuwaiti Oil Minister Ali Saleh Al-Omair said there would be “no change” to OPEC’s existing oil production target following the meeting.
OPEC will meet again in June next year, said an OPEC delegate.
“Oil prices are now completely in the hands of the market,” Dominic Chirichella, director of New York-based Energy Management Institute, told Reuters Global Oil Forum.
Oil analysts said the OPEC decision left the oil market vulnerable to much bigger falls as abundant supply of high quality, light crude oil flooded world markets, much of it from shale oil in North America.
“Saudi Arabia and OPEC will have to live with a prolonged period of low prices for any dent in US-shale or production levels to happen,” said Harry Tchilinguirian, senior strategist at BNP Paribas in London.
Ehsan Ul-Haq, senior oil market consultant at KBC Energy Economics, in Vienna for the OPEC meeting, said he expected oil prices to stay under $80 a barrel for some time.
“The probability of oil prices going below $70 a barrel is 20 percent, remaining in a range of $70-80 a barrel is 40 percent,” he said.
Oil companies were not spared the pain, with the sector’s share index on the London stock market declining by more than 4 percent following the OPEC decision.
Going into the meeting in Vienna, OPEC faced pressure from its poorer members, notably Venezuela and Ecuador, to cut output as collapsing prices slashed their precious revenues.
But its Gulf members rejected calls to turn down the taps unless they are guaranteed market share in the highly competitive arena, particularly in the US, where a flood of cheaper oil from shale rock has contributed to the global oversupply.
“We should withdraw the overproduction from the market,” Venezuelan Foreign Minister Rafael Ramirez told reporters ahead of Thursday’s outcome.
The International Energy Agency (IEA) warned in a recent report that the “price rout” was not over, and that crude futures would slide well into 2015.
Plunging oil prices have fanned concerns about the growing threat of deflation in the world economy, and particularly in the eurozone.
While falling consumer prices may sound good for consumers, deflation can trigger a vicious spiral where businesses and households delay purchases, throttling demand and causing companies to lay off workers.
OPEC pumped 30.6 million oil barrels per day last month, above its 30 million bpd target according to the IEA.
Ahead of the meeting, Saudi Arabia cut charges for US customers in a move seen as a bid to maintain its market share amid increasing competition there from shale energy.
OPEC has meanwhile insisted that it is not solely up to the group to tackle the oversupply that is sending crude prices crashing.
Officials from Saudi Arabia met with their counterparts from Venezuela and non-OPEC oil producers Russia and Mexico in Vienna on Tuesday.
Following the surprise gathering, Russian oil giant Rosneft said it had trimmed its daily output by 25,000 barrels because of “market conditions.”
The token reduction represented less than one percent of the behemoth’s total and did nothing to boost energy prices on depressed global commodity markets.