Oil prices tumbled more than 8% yesterday to a four years after OPEC decided not to cut its production target despite the months that accumulate fall in prices have damaged the budgets of many cartel members.
The decision brought down the shares of energy companies, weakened currencies of oil exporters and clouded the outlook for US producers of unconventional oil (shale) . And all this against the backdrop of next crash 40% suffered by the oil price since mid-June. As the group announced that it would extend its current daily production ceiling of 30 million barrels traded on ICE Brent for January delivery fell $ 6.50 to $ 71.25 a barrel. He later recovered losses, trading at $ 72.80. Igor Sechin, the powerful chairman of Russian state oil company Rosneft, predicted that oil could drop below $ 60 in the first half of next year, said the company would be forced to postpone some costly projects. The Russian ruble, which has lost 27% of its value since mid-June, a record low of 48.7 against the dollar, while shares of European airlines and other large consumers rose in the case of easyJet 5.7%. The rebound of US production, which reached its highest level in three decades, has joined OPEC reserves well above the target and slowing oil demand in China and Europe and saturating the market. The decision not to modify the production target represents a significant change from the traditional policy of the cartel, trying to shore up prices through production cuts. This suggests that OPEC, and especially its largest producer and de facto leader, Saudi Arabia, expected to test the value of US shale operators and assess how they might impact of lower prices on output growth. “I would not call a price war, but it is a very aggressive test for US shale,” says Jamie Wenster an oil analyst at consultancy IHS Energy. “It’s a new strategy of OPEC.” However, it is also a test for multiple poorest members of OPEC. The low cost producers and large foreign exchange reserves as Saudi Arabia are willing to endure a period of cheap oil, while Venezuela, Nigeria and Iran need higher prices to balance their budgets. In the days before yesterday’s meeting, some members, especially Venezuela, have openly called for production cuts. Amrita Sen, oil analyst Aspects of Energy, said: “This is turning into a fight to see [who have] more money, survival of the fittest”. In his final statement, OPEC said it would maintain its current production levels in order to “restore market balance”, which is a clear indication that believes the cure for increasing oil saturation is a lower price. That message echoes previous statements Saudi Oil Minister Ali al-Naimi, who said before the meeting that he expected the market “were to stabilize itself” was made.
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