Business

Oil tumbles to six-year low as OPEC abandons production target

With OPEC unwilling to cut back on production, low oil prices seem almost guaranteed for at least the next few months.
With OPEC unwilling to cut back on production, low oil prices seem almost guaranteed for at least the next few months. AP

Oil fell to the lowest level in more than six years on Monday amid speculation that a record global glut will be prolonged after OPEC effectively abandoned its longtime strategy of limiting output to control prices.

Emmanuel Ibe Kachikwu, president of the Organization of Petroleum Exporting Countries, said Friday that the cartel will keep pumping about 31.5 million barrels a day. In doing so, OPEC is setting aside its output quota of 30 million barrels a day, a target it’s breached the past 18 months, until members gather again in June.

That set off a sell-off in oil futures and energy stocks. West Texas Intermediate for January delivery sank $2.32, or 5.8 percent, to settle at $37.65 a barrel on the New York Mercantile Exchange, the lowest close since February 2009. Brent for January settlement dropped $2.27, or 5.3 percent, to end the session at $40.73 a barrel on the London-based ICE Futures Europe exchange.

Oil has slumped more than 40 percent since Saudi Arabia led OPEC’s decision in November 2014 to maintain output and defend market share against higher-cost U.S. shale producers. Global stockpiles have expanded to almost 3 billion barrels as the Saudis, Russia and Iraq increased supply, according to the International Energy Agency.

“We’re plunging with the dawn of an OPEC without quotas,” said John Kilduff, a partner at Again Capital, a New York-based hedge fund. “The Saudis doubled down on their strategy of driving out higher-cost producers. They are prepared to play a long game to return to dominance.”

On Wall Street, tumbling oil helped spur a rout in energy stocks, which were the worst performers on the Standard & Poor’s 500 Index. Exxon Mobil and Chevron Corp., the biggest U.S. energy producers, each fell about 3 percent.

Most of the market “doesn’t have any ceiling,” Iraqi Oil Minister Adel Abdul Mahdi told reporters in Vienna on Friday. “Americans don’t have any ceiling. Russians don’t have any ceiling. Why should OPEC have a ceiling?”

After Friday’s decision,“everyone does whatever they want,” according to Iranian Oil Minister Bijan Namdar Zanganeh, who estimated the global surplus at as much as 2 million barrels a day. ThePersian Gulf nation is seeking to boost crude exports next year when international sanctions over its nuclear program are removed.

Inventories have climbed as production has outpaced demand. U.S. crude supplies rose to 489.4 million in the week ended Nov. 27, the highest level for this time of year since 1930, Energy Information Administration data showed Dec. 2.

“We’re in the midst of the worst,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Mass. “I think we’ll be looking at a very different market in the next few months. Once there’s more evidence that production is falling, prices will start to recover.”

The decline in oil prices has led drillers to scale back significantly in U.S. shale fields, leading to mergers, bankruptcies and thousands of layoffs. In Texas, the Texas Alliance of Energy Producers estimates that the oil bust could cost the state as many as 60,000 oil-patch jobs this year.

At a conference in Doha, the heads of ConocoPhillips and Saudi Arabian Oil Co., the world’s largest oil exporter, predicted that crude prices will start to recover in 2016 as output from the U.S. and other non-OPEC producers declines.

Investment in U.S. oil production will be flat or lower next year, and diminishing output in the country in 2015 and 2016 will help re-balance the global market, ConocoPhillips Chairman and Chief Executive Officer Ryan Lance told reporters Monday. Supply from unconventional oil sources, such as U.S. shale deposits, fell this year, Saudi Arabian Oil CEO Amin Nasser said at the same event.

“There is no additional unconventional oil coming to the market; actually there is a decline,” Nasser said. “So the supply and demand imbalance in the market will adjust and stabilize, and the gap will be closing. And we will be seeing, hopefully, adjustment in the prices going forward starting in 2016.”

This article includes material from Star-Telegram archives.

  Comments