Amid the Organization of Petroleum Exporting Countries announcement to continue production close to record high level, and in spite of depressed oil prices, prices on Friday fell further. The oil producer group continues to safeguard its own share of a market which is oversupplied.
According to OPEC’s Secretary General, Abdullah al-Badri, due to the fact that the amount of oil exported by Iran next year after the lifting of sanctions is unclear, OPEC has been unable find a commonly agreed upon production ceiling. Due to this lack of consensus, member countries are continuing to pump oil at the currently recorded rates. Unfortunately, this is taking place within an already over supplied global market.
Although the announcement on Friday sent ripples across the broader markets, resultant losses in oil futures were insubstantial, since prices reached key support levels at approximately $40 per barrel. By 12:11 p.m. ET, Brent crude oil futures dipped 58 cents to $43.26 a barrel. This was after increasing in early trade. The benchmark was just within cents of Augusts’ 6-1/2-year trough. U.S. crude futures fell more than 2 percent (98 cents) to $40.10. This was after falling below $40 briefly.
For Saudi Arabia, the maintaining of production would certainly be a significant victory since it has, for some time now, been pressurized by OPEC’s poorer members to reduce output so as to improve prices. Since June 2014, oil prices have dipped significantly from over $100 a barrel. The current global glut has weighed heavily on prices. Despite current circumstances, Saudi Arabia has been content to maintain production levels. This move has certainly squeezed non-OPEC producers. This is inclusive of the United States, who, along with other non-members, has struggled to keep profits up despite the low prices.
According to sources, OPEC has reached the decision to increase its collective output ceiling from 30 million barrels per day to 31.5 million barrels per day. The move clearly acknowledges that members are already currently pumping very much in excess of the ceiling. OPEC, however, failed to make mention of a ceiling when making its official announcement.
According to Paul Horsnell, who is head of commodities research at Standard Chartered, “Trading longer-term market share against short-term revenues is a hazardous policy, but once started it needs to be followed through to the end. That’s the argument that has carried the day in OPEC, and the heavy pressure on non-OPEC producers, especially U.S. shale, is going to be kept up.”
After the announcement by OPEC, Energy Company shares fell, including those of Baker Hughes, Inc., Exxon Mobil Corp., and Halliburton Co. The S&P Energy index also fell more than 1 percent, which helped cap gains in the broader stock market.