Brent oil fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group’s output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices.
This outcome set the stage for a battle for market share between OPEC and non-OPEC countries, as a boom in U.S. shale oil production and weaker economic growth in China and Europe have already sent crude prices down by about a third since June.
“It is a new world for OPEC because they simply cannot manage the market anymore. It is now the market’s turn to dictate prices and they will certainly go lower,” said Dr. Gary Ross, chief executive of PIRA Energy Group.
The wealthy Gulf states have made clear they are ready to ride out the weak prices that have hurt the likes of Venezuela and Iran – OPEC members which face big budget pressures, but cannot afford to make cuts themselves. Venezuela and Algeria had calling for output cuts of as much as 2 million bpd.
Venezuelan Foreign Minister Rafael Ramirez said he accepted the decision as a collective one and hoped that lower prices would help drive some of the higher-cost U.S. shale oil production out of the market.
Members without such a cushion would find it much more difficult, as would a number of producers outside the group. Russia’s rouble, which has been sliding for much of this year, extended losses on Thursday to trade more than 2 percent lower than the previous close against the U.S. dollar.
“Why would Saudi cut production in the current environment? Why would they want to support Iran, Russia or U.S. shale producers? So they must have decided: let the market establish the price. Once the market goes to a new equilibrium, prices will go higher,” PIRA Energy’s Ross said.
Kuwaiti Oil Minister Ali Saleh al-Omair said OPEC would have to accept any market price of oil, whether it were $60, $80 or $100 a barrel. Iraq’s oil minister, Adel Abdel Mehdi, said he saw a floor at $65-70 per barrel.
“We interpret this as Saudi Arabia selling the idea that oil prices in the short term need to go lower, with a floor set at $60 per barrel, in order to have more stability in years ahead at $80 plus,” said Olivier Jakob from Petromatrix consultancy.