Crude oil prices dipped further on Monday after OPEC failed to agree on output targets to reduce a bulging glut that has cut prices by more than 60 per cent since June 2014.
The Organization of the Petroleum Exporting Countries (OPEC) failed to agree on an oil production ceiling on Friday after a disagreement between Saudi Arabia and Iran.
The disagreement meant that the group for the first time in decades didn’t even mention an output quota, which previously stood at 30 million barrels per day (bpd).
“Past communiques have at least included statements to adhere … or maintain output in line with the production target (of 30 million barrels per day). This one glaringly did not,” Barclays Bank said.
By abandoning output restraint, analysts said the group was sending a message to other producers such as Russia and North American shale drillers that it was willing to accept low oil prices to defend market share.
“OPEC is sending an ultimatum to its competitors: The fall in oil production should come from them,” OCBC Bank said.
Morgan Stanley said OPEC “believes its strategy is slowly working”.
U.S. crude CLc1 was trading at $39.57 a barrel at 0810 GMT, down 40 cents. Internationally traded Brent futures LCOc1 were down 20 cents at $42.80 per barrel.
This left both benchmarks near 2015 lows and not far off levels seen during the peak of the global financial crisis of 2008/2009.
Bigger price falls earlier in the session were prevented as the chief executive of Saudi Aramco, Amin Nasser, said he expected some market adjustment and stabilization in 2016.
OPEC’s output of more than 30 million bpd has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure.
Analysts said that OPEC would likely maintain production around current levels and that a strategy on how to deal with new Iranian volumes once sanctions against Iran are dropped would be discussed at the group’s next meeting in June 2016.
Because of ongoing oversupply, prices will likely fall further with the chief executive of French oil major Total saying he did not anticipate an oil price recovery because of supply outstripping demand.
“The effective removal of the OPEC quota leaves the market in a more vulnerable position.
“Prices are likely to weaken this week as the market turns its attention back on U.S. supply,” ANZ bank said, referring to near record U.S. crude inventories of almost 490 million barrels.
“With Iran exports likely to start increasing next year, this increases the likelihood of further weakness in crude oil markets,” ANZ bank said.
-Reuters/NAN
