Oil prices have plummeted again (below $40 for WTI Crude & $43 for Brent) despite an initial surge of 3% late Thursday last week on the news that OPEC would increase output. The outlook, however, grew more confusing as the seven hour Friday OPEC meeting progressed; it eventually resulted in OPEC delaying its scheduled news conference and then ultimately failing to confirm the news reports of a production increase.
WTI closed the Friday session 2.7% lower and was actually 3.8% down on the week. Brent fell 1.8% at the market close on Friday, and was down 3.66% for the whole week.
"Lots of people said that OPEC was dead; OPEC itself just confirmed it," Jamie Webster, a Washington-based oil analyst for IHS, said in Vienna.
OPEC has set a production target almost without interruption since 1982, though member countries often ignored it and pumped well above it. The ceiling of 30 million barrels a day, in place since 2011 has now been completely abandoned.
OPEC output has outstripped it for 18 consecutive months, according to data compiled by Bloomberg. Now the organisation says it will keep pumping as much as it does now – about 31.5 million barrels a day – effectively endorsing limitless output.
It seems the general consensus is that OPEC didn’t decide anything on Friday and have opted for the already present Saudi Arabia-led policy of pump, pump, pump until external rivals such as Russian / US shale drillers are squeezed out of market share. The EIA’s weekly numbers actually showed another increase in crude inventories by 1.2 million barrels last week, now just a whisker off the 80-year high hit earlier this year.
The oversupply is certainly looking likely to continue into the New Year. Iran, for so long limited under sanctions relating to their nuclear program have promised to increase its production levels to a s much as 4 million barrels a day by the end of 2016, they currently only produce 3.3 million barrels.
The decision (or lack of it) seems to be reflective of the idiom that setting specific targets is pointless and all OPEC countries are just going to do what’s best for them; in general this means that they are going to produce as much oil as possible in order to make up for lower revenues earned from the lower prices.
There seems to be no collusion at the moment, as was the previous influence of OPEC, who used to serve to galvanise the oil producing community; countries, now, are operating independently with OPEC itself admitting it can no longer influence prices to the degree it once could.
Countries like Venezuela are facing a financial and political crisis as a result of the collapse in Crude prices and Saudi Arabia are unwilling to help reverse this course. OPEC operates by consensus hence they will continue to produce flat out and fight for market share.
OPEC left the door open for a possible meet in January or February although the next meeting isn’t actually scheduled for 2nd June next year.