OPEC Leaves Production Target Unchanged

Brent Crude Price Plunges to Fresh Four-Year Low

VIENNA—OPEC members rejected calls for drastic action to cut their oil output, keeping their production ceiling unchanged and suggesting the cartel is bracing for lower prices longer term.

The decision on Thursday sent crude prices into a tailspin and spilled into currency and European stock markets. If Thursday’s market rout proves lasting, it will provide more relief to consumers in gasoline-guzzling countries like the U.S. But it is hammering the finances of big oil producers, from Russia to Venezuela, and biting into profit at oil companies big and small.

The 12-member Organization of the Petroleum Exporting Countries, who collectively pump more than one-third of the world’s oil, agreed at their meeting in Vienna to stick to the group’s current target of producing 30 million barrels a day.


Since the cartel is currently pumping more than its ceiling, the decision -- backed by a commitment from OPEC members to comply with it -- implies a cut of around 300,000 barrels a day, based on OPEC’s own figures. That would put only a relatively small dent in global oil supply even if implemented, and the group has exceeded its ceilings most quarters since late 2011.

The decision sent oil prices tumbling, with the West Texas Intermediate benchmark falling below $70 a barrel for the first time in more than four years. Oil for January delivery fell $4.64, or 6.3%, to $69.05 a barrel as electronic trading on the New York Mercantile Exchange halted at 1 p.m. Thursday. The Nymex floor was closed Thursday in observance of Thanksgiving. The global Brent contract for January fell $5.17, or 6.7%, to $72.58 a barrel on the ICE Futures Europe exchange.

Currencies of major oil producing countries slid, with the Russian ruble hitting a record low against the euro and nearing an all-time low against the dollar. Share prices of major European oil companies dived, with Royal Dutch Shell PLC down 4.3%, Total SA off 4.1% and BP falling 2.7%.

Analysts had estimated OPEC would need to take 1 million to 1.5 million barrels a day off the market to support oil prices, which have fallen by more than 30% since the summer.

The absence of stronger OPEC action makes a rebound in oil prices less probable, putting more strain on oil-producing countries which became used to oil prices above $100 a barrel for much of the time since early 2011. Among OPEC’s members, only Qatar and Kuwait will be able to balance their budgets next year with prices at their current level.

The biggest losers from the current price trend could include Russia, which is already suffering from an economic slowdown and feeling the effects of both lower oil revenues and Western sanctions imposed because of the Ukraine conflict.

But the drop in prices has helped consumers in developed countries such as the U.S. heading into the holiday shopping season. Lower prices at the pump and on heating bills give consumers more money for discretionary items such as restaurant meals, electronics and haircuts.

The decline in gas prices over the last six months is equivalent to a $75 billion tax cut in the U.S., said economists at Goldman Sachs in research published Wednesday. Falling fuel prices also reduce production and shipping costs for an array of U.S. manufacturers, farmers and businesses.

The national average for regular gasoline fell to a four-year low of nearly $2.80 a gallon on Thursday, according to auto club AAA. Gas prices were as high as $3.68 at the end of June.

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While most OPEC countries want to see global oil supply reduced to help boost prices, most individual members have been unwilling to cut their own production for fear of losing crucial oil-related income and market share. Algeria and Venezuela said they would cut their own production if a collective cut is agreed.

Another problem for OPEC is that if it were to cut production sharply, resulting higher oil prices might only help incentivize yet more production from U.S. shale oil leading OPEC to lose more of its share of global markets.

Iraq’s oil minister Adel Abdul-Mehdi said OPEC was left with little choice but to maintain its production target, saying a deeper cut might not raise prices and could result in countries losing market share.

Venezuela, which will need oil prices at $117.50 a barrel to balance its government budget next year according to Deutsche Bank , proposed a sharp output cut, according to people familiar with the meeting. Beforehand its representative Mr. Ramirez told reporters he wanted two million barrels a day of oversupply out of the market.

That idea was aggressively opposed by OPEC’s Gulf members, led by the group’s largest producer, Saudi Arabia, which has sought to maintain its market share—a third of OPEC’s total production—by cutting prices in recent months.

Each OPEC member needs to sell oil at a certain price to balance its budget. But there is a wide gap between the prices at which different members break even. Limiting output would raise prices but individual countries would risk losing market share.

Oil sinks below $59 after IEA cuts demand outlook

SAN FRANCISCO (MarketWatch) — Crude-oil futures fell Friday after the International Energy Agency delivered the latest reduction to forecasts for global oil demand.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in January CLF5, -2.99% fell $1.27, or 2.2%, to $58.69 a barrel. Futures ended the previous session below the key $60 level for the first time in five years.

January Brent crude on London’s ICE Futures exchange LCOF5, -2.42% fell $1.13, or 1.8%, to $62.58 a barrel on Friday. Brent also closed at its lowest level since 2009 on Thursday.

Crude losses deepened after the IEA cut its 2015 global oil-demand view by 230,000 barrels a day to about 900,000 barrels a day.

Both WTI and Brent crude have now lost almost 45% of their value since June this year, in what market participants are now calling the “oil shock of 2014”.