The ministers of the Organization of the Petroleum Exporting Countries appeared to have little choice.
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OPEC’s announcement sent ripples through wider markets and dented shares of US energy drillers already suffering from low prices, but losses in oil futures were limited as prices hit support around $40 a barrel. Sanctions on Iranian oil sales are about to end, Indonesia is about to be reinstated as a member and Iraq’s production is coming back strongly after years of conflict.
OPEC has reportedly agreed to raise its production ceiling to 31.5 bpd.
In addition, the dollar rose against other major currencies on stronger-than-expected United States employment data.
Saudi Arabia has previously said it would be prepared to consider a cut only if Opec members Iraq and Iran agreed to co-operate and non-Opec members such as Russian Federation joined in.
Tim Rezvan, an oil analyst with Sterne Agee CRT, said OPEC’s decision heralds a “bearish near-term event” for the US oil industry. In a statement, the group noted that it expects non-OPEC supply of oil to actually contract next year, even as demand rises.
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.
Most of OPEC’s members, including Venezuela, need higher oil prices to balance their national budgets.
OPEC kingpin Saudi Arabia and other Gulf state members are defying calls to cut output despite tumbling prices in a bid to preserve market share and fend off competition from North American shale oil.
The most vulnerable companies as low oil prices persist amid OPEC’s inaction are those struggling to cut high debt levels, said Samir Kayande, analyst at ITG Investment Research. On the demand side, China is likely to double its strategic crude oil purchases next year to take advantage of a more than a 60 percent fall in oil prices since June 2014.
A solution to the market slump requires a global effort as OPEC pumps less than half the world’s oil, Kachikwu said on Friday in a Bloomberg TV interview in Vienna. “OPEC produces only about 35-40% of world consumption”.
Saudi Oil Minister Ali Al Naimi earlier had said he hoped growing global demand could absorb an expected jump in Iranian production next year: “Everyone is welcome to go into the market”.
Iran has repeatedly said it would boost production by at least 1 million bpd when sanctions are lifted.
“In approving Indonesia’s resumption of its full membership in the organization, the conference extended a warm welcome to its delegation, headed by HE Sudirman Said, minister of energy and mineral resources of Indonesia”, OPEC secretariat revealed.
Signaling further pain, the US oil drilling rig count fell this week for the 13th week in the last 14, down to 545, about a third of the number operating this time past year. “Despite some softening in rhetoric, OPEC members have once again demonstrated that they will seek to defend market share”.
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Surging oil production from non-OPEC nations like the US has created a deep divide inside OPEC.
