The oil price slumped to its lowest level in more than four years yesterday after Saudi Arabia defeated attempts by some members of Opec to enforce a cut in the cartel’s production.
The oil producers’ group, meeting in Vienna, announced no change in its 30 million barrels a day quota in order to support the price of the fossil fuel, which is in the grip of a bear market after plunging more than 30 per cent since June.
“We’re going to produce 30 million for the first half of the year,” said Abdalla Salem el-Badri, Opec’s secretary-general. “We have no target price; we are looking for a fair price”.
In response, the price of a barrel of Brent crude, used as a global benchmark, fell more than 6 per cent to $71.25, the lowest it has been since September 2010, when the developed world was still emerging from the recession. West Texas Intermediate, the key US benchmark, fell below $70 a barrel, hitting its lowest level since June 2010.
Analysts predicted that the price would decline further. John Hall, head of the consultancy Alfa Energy, said: “The [Brent] oil price could easily fall below $70 a barrel now – and the one thing that will do is screw the shale market.”
The US has stepped up its domestic production of shale oil dramatically in recent years. American oil output has risen from 5.4 million barrels a day in 2010 to 8.6 million, helping to push down global prices.
Experts said Saudi Arabia, the world’s largest oil producer and the dominant force in Opec, was calculating that lower prices today would help guarantee demand for oil in the medium term, by making it less profitable for US companies to extract shale oil.
“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 the Petromatrix consultancy.
“In other words, it should be in the interest of Opec to live with lower prices for a little while in order to slow down development projects in the United States.”
In its concluding statement Opec made no mention of the need for an extraordinary meeting, something which has been floated by members such as Venezuela and Iran.
“It was a great decision,” said the Saudi oil minister Ali al-Naimi as he emerged from the meeting. Diezani Alison-Madueke, the oil minister in Nigeria, which has been hammered by a collapse in US energy imports from Africa, said she had been persuaded by the arguments for maintaining present production levels. “It was felt that this was the best thing to do at this time, with the hope that over the next few months we may see stability in oil prices,” she explained.
The public finances of Venezuela, another Opec member, have been ravaged by the declining energy price. It is estimated that the South American country needs global prices to be well above $100 a barrel to fund its spending commitments.
Opec – which stands for the Organization of the Petroleum Exporting Countries – accounts for around a third of global oil output. The group said it would next meet in June 2015.Reuse content