The 166th OPEC meeting concluded with a decision not to cut oil supply which sent oil prices further down and below $70.
OPEC decided to maintain the production levels at 30 million barrels per day, as was the agreement in December 2011. Acknowledging the uncertainties and risks in the future developments of the world economy, OPEC promised to monitor closely oil supply and demand and keep Member Countries fully informed on the developments.
“We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves,” Abdalla EL-Badri, OPEC Secretary-General informed the press in Vienna after the meeting, Bloomberg reports.
OPEC pumped around 30.97 million barrels a day in October. Therefore, it looks like OPEC’s decision to stay within its target output implies it will cut supplies by about 1 million barrels a day, Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore, said in an e-mailed report to Bloomberg today.
Mike Wittner, the head of oil research at Sociate Generale SA in New York noted that it could be a new era for oil prices, where the market itself will manage supply, and no longer Saudi Arabia and OPEC.”
Oil dropped nearly $6 to $67.73 on Thursday, lowest since May 2010 and currently trading at $68.65. The oil prices fell by more than $40 per barrel since mid-June, when oil was on its peak of $115. Low prices are highly due to the increased U.S. production and weakening global demand.
U.S. oil production has risen to 9.077 million barrels a day, the highest level since1983 recorded in a weekly report from the Energy Information Administration (EIA). EIA forecasts the output to climb further to 9.4 million next year, the highest since 1972.
The highest U.S. oil output recorded in the last 30 years, due to the fracking boom, is said to be causing an estimated global oil surplus of 2 million barrels a day which is more than the daily production of five OPEC members. Analysts are wondering how low the price of oil has to go to stop the U.S. production growth. Most production in the Bakken formation which is one of the main drivers of shale oil output remains profitable at or below $42 a barrel, Bloomberg reports IEA estimations.
Following OPEC meeting, Anton Siluanov, Russian minister of Finance said that Moscow will have to review its state budget under current conditions that will keep the oil prices below or at $80 per barrel, and not $100 per barrel, for the next few years, RIA Novosti reported.
Meanwhile, the Russian state-owned oil company Rosneft told the TASS newsagency that the “current market situation does not require unexpected actions,” noting that “nothing extraordinary is happening.” Rosneft explained that it has a sufficient margin of safety, and is not very worried since its production costs are one of the lowest in the world – just above $4 per barrel, RT reports. Saudi Arabia is not worrying too much either, as it can also still make profits even with lower prices.
Iran and Venezuela are panicking though. Iran needs $140 per barrel to balance its state budget, while Venezuela needs $150.
The next OPEC meeting will take place in Vienna, Austria on Friday, 5th of June immediately after the OPEC International Seminar on “Petroleum: An Engine for Development” which will take place at the Vienna Hofburg Palace on 3rd and 4th June 2015.
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