Brent crude futures slumped to the lowest level in more than four years after OPEC refrained from cutting production limits. West Texas Intermediate slid below $70 for the first time since 2010.
Futures tumbled 6.7 percent in London, the steepest one-day decline in more than three years, after Saudi Oil Minister Ali Al-Naimi said the group maintained its collective ceiling of 30 million barrels a day. The 12 member organization will abide by its target as it seeks a “fair” oil price, Secretary-General Abdalla El-Badri said in Vienna.
Crude collapsed into a bear market last month amid the highest U.S. output in three decades, slower demand growth and speculation OPEC’s biggest members were more interested in preserving market share than propping up prices. The outcome of today’s meeting was anticipated by 58 percent of respondents in a Bloomberg Intelligence survey this week.
OPEC’s decision is “unambiguously bearish,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by e-mail. “We are entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC.”
Brent for January settlement declined $5.17 to $72.58 a barrel on the London-based ICE Futures Europe exchange, the lowest since August 2010.
WTI for January delivery dropped $4.64, or 6.3 percent, to $69.05 a barrel in electronic trading on the New York Mercantile Exchange, the least since May 2010. Prices have decreased 30 percent this year. Gasoline futures tumbled 5.6 percent to the lowest since September 2010. Floor trading was closed today because of the U.S. Thanksgiving holiday.
The Organization of Petroleum Exporting Countries, producer of 40 percent of world supplies, pumped 30.97 million barrels a day of oil in October, exceeding its collective target for a fifth month, data compiled by Bloomberg show. The group estimates the world will need 29.2 million barrels a day of its crude next year, according to a report on Nov. 12.
“The Saudis were able to pull this off, which is pretty amazing,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “This is the biggest gamble since 1986” when OPEC increased production to maintain market share as prices plunged, he said.
Back then, the Saudis opened the spigot and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.
OPEC policy will ensure a crash in the U.S. shale industry as drilling is close to becoming unprofitable for some explorers, Leonid Fedun, vice president and board member of Russian oil company OAO Lukoil, said today in an interview in London.
While OPEC’s 30-million-barrel limit has been in place since 2012, the group actually produced almost 1 million barrels more last month, data compiled by Bloomberg show.
The decision is “going to end in great consternation for the cartel because these prices are going to continue to tumble,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “They have chosen to toughen out and challenge the higher-cost producers.”
WTI is poised to extend declines, according to Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group.
“If you accept that global production, by any reasonable measure, is exceeding demand by at least 1.2 million barrels a day, prices have to work lower,” he said.
U.S. crude output rose 73,000 barrels a day to 9.08 million last week, the highest in weekly records dating back to 1983, government data showed. Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies in shale formations in North Dakota, Texas and other states.
WTI will probably drop into the mid-$60 a barrel range, Martin King, vice-president of institutional research at FirstEnergy Capital Corp. in Calgary, said in a phone interview.
“That’s the level where you see more of an impact on the marginal cost plays in the U.S.,” he said. “We’ll see a $60 some-odd handle in Brent prices as well and I think that’s where we will stabilize into the end of the year.”
OPEC is “not playing hardball,” Nigerian Petroleum Minister Diezani Alison-Madueke said after the meeting. Iranian Oil Minister Bijan Namdar Zanganeh said the decision was not what his country wanted.
The OPEC rollover will fail to resolve the glut in the oil market and is “very much in line with expectations,” Seth Kleinman, Citigroup Inc.’s head of European energy research, said by phone.