“Why should OPEC alone sacrifice its part in the market”, Iraq’s Oil Minister Adel Abdul Mahdi told reporters after the meeting. The group is producing above its current ceiling, and the return of Indonesia to the cartel plus a ramp up of production in Iran is making it look even less meaningful. “So the bounce in crude futures is likely to be tentative”. “Moreover, the WTI is still defended aggressively at the US$40 mark, after closing down 4.6 percent lower on Wednesday at US$39.94”.
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To the minister, as far as supply is concerned, non-OPEC countries would continue to see significant reduced production growth as compared to past years, noting: “In fact, in 2016, we anticipate a contraction in non-OPEC oil supply”.
Amidst falling oil prices, a lowering of the output ceiling to prop up price was half expected by some analysts but OPEC decided otherwise, opting instead to keep its market share.
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.
“Given the present position of the economy of countries that are purchasing (oil) and the worldwide economy, we will retain production at current levels”, said Kachikwu.
“The market did not take the announcement out of OPEC very well today as OPEC appears to really be in disarray among its members and they took the path of least resistance, which was to do nothing and wait to see if things get better”, said Andy Lipow of Lipow Oil Associates.
USA crude futures dropped over 2 percent, or 98 cents, to $40.10 after briefly dropping below $40.
Reduced oil revenue is also causing some of the influential business class to push Riyadh to quickly seek an end to its expensive war in Yemen, the kingdom’s biggest strategic gambit in decades, and one that defines King Salman’s foreign policy.
“In view of the aforementioned, and emphasising its commitment to ensuring a long-term stable and balanced oil market for both producers and consumers, the conference agreed that member countries should continue to closely monitor developments in the coming months”. But in a break from that strategy, OPEC has held production steady since previous year in a bid to defend-and extend-its share of the oil market. The spread between the worldwide and USA domestic benchmarks of crude stood at $3.04, above Thursday’s level of $2.80 at the close of trading.
Historically low oil prices have OPEC so divided that marathon talks in Vienna that closed Friday could only produce one thing: disagreement. The group pumped about 31.4 million barrels a day in October, according to its market report. In September, OPEC produced 31.57 million barrels a day, according to its own data.
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OPEC believes that output from non-member states will eventually wane in light of the low crude prices, but Friday’s decision is also meant to accommodate new production from cartel members.
