Crude oil prices plummeted to their lowest level since the recession as major oil producers choose competition for share in already glutted markets at the same time that a global economic slowdown may dampen demand.
The Organization of Petroleum Exporting Countries (OPEC) meeting Friday in Vienna said that its members would maintain current production, currently about 31.5 billion barrels a day, ahead of the group’s official 30 million barrels a day limit.
With the oil market’s major individual swing producer Saudi Arabia and its OPEC colleagues unwilling or unable to curtail production to support prices in the face of widespread competition from U.S. shale producers, oversupply seems likely to be the price determining factor for the immediate future.
Generic West Texas Intermediate was down 5.85 percent in New York trading at $37.63 at 2:55 pm, having been as low as $37.50 earlier. It was the lowest price for a barrel of the American standard since February 2nd, 2009. December 19th 2008. Oil prices are forecast to remain under pressure next year as American shale drillers have proven better able to adapt to dramatically lower oil pieces than was expected. They have continued pumping at near record levels for U.S. production.
Meanwhile, OPEC has shown little ability to unite and limit production. Perhaps because several of the major Gulf producers face serious financial constraints from weaker oil revenue.
While demand growth was relatively robust this year, the slowing global economy combined with a warm winter so far in the United States may weigh on consumption, even as producers joust for sales.
OPEC’s production now accounts for less than half global output, and with U.S producers continually improving their efficiency and profitability by lowering drilling costs, the oil cartel's conclusion has been that any market share reduction is probably lost forever.
OPEC’s decision to keep to its market share strategy intact instead of cutting production to force prices higher is a reflection of the changed dynamics of the oil production brought on by the ascent of the U.S to be the world's dominant marginal producer. Waiting in the wings is the return of Iran to the world oil markets in 2016, when sanctions end allowing the country to increase its exports.
Chief Market Strategist
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