Oil prices at seven-year low over Opec row

Oil prices fell yesterday to their lowest in nearly seven years after the Organization of the Petroleum Exporting Countries (Opec) meeting ended in disagreement last week over production cuts and without a reference to its output ceiling, while a stronger dollar made it more expensive to hold crude positions.

Opec failed to agree in its policy meeting on Friday to lower production in an attempt to stem prices that have dropped more than 60% since June 2014.

For the first time in decades, oil ministers dropped any reference to the group’s output ceiling, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.

Brent crude prices, the globally traded benchmark, traded down 92c at $42.08 (€38.78) a barrel and touched a low of $41.77, the lowest since March 12, 2009.

US crude was down $1.20 at $38.77 a barrel, a drop of 3% on Friday’s close.

And in a sign that investors expect prices to remain weak for years to come, forward contracts out to 2024 have dropped below $60 a barrel.

Analysts at Barclays said the lack of an Opec production target in its written announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output... This one glaringly did not,” they said.

Opec’s output of more than 30m barrels per day has compounded an oil glut, pushing production 0.5m to 2m daily barrels beyond demand and putting many producers under pressure, especially small-sized US shale drillers that have piled up large amounts of debt.

Analysts at Commerzbank said any recovery in prices would be dictated not by Opec but by rising demand and a fall in production outside of the group.

Saudi Arabia, the world’s biggest oil exporter, is banking on producers of unconventional oil buckling for output to fall. Saudi Aramco chief executive Amin Nasser said at a conference in Doha yesterday that he hoped to see oil prices adjust at the beginning of next year.

In a sign that US production could dip, Baker Hughes’ November data showed US rig count numbers were down by 31 to 760 rigs.

Patrick Pouyanne, chief executive of French oil company Total, said he did not expect prices to recover next year as production growth was set to outstrip a rise in demand.

“It is not unreasonable to assume that downward pressure on prices will remain for the foreseeable future, as it will take time for low prices to materially scale back production,” Cenkos Securities analysts said.

Reuters