The price of oil slumped after the Opec oil producers’ cartel decided not to cut output at its meeting in Vienna.
Opec’s secretary general Abdallah Salem el-Badri said they would not try to shore up prices by reducing production.
“There’s a price decline. That does not mean that we should really rush and do something,” he said.
Following the announcement Brent crude fell below $72 a barrel, hitting lows previously seen in August 2010.
The 12 Opec members decided to maintain production at 30 million barrels per day as first agreed in December 2011.
“We don’t want to panic. I mean it,” said Mr el-Badri. “We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change.”
Crude oil prices have fallen 30% since June on sluggish global demand and rising production from the US.
The fall in the oil price has been causing concern for several members of the oil cartel, as most require a price above $80 a barrel to balance their government budgets and many need prices to be above $100 a barrel.
“Saudi Arabia and the Gulf states can resist for a while,” said Simon Wardell, energy expert at Global Insight.
“They have significant financial assets that mean they can sustain a lower oil price. They can secure their budgets without a higher oil price.”
Saudi Arabia is the largest producer within the Opec oil producing cartel.
The markets didn’t expect OPEC to do much at this meeting.
Analysts here thought they might manage a resounding commitment to curb the excess production above the existing ceiling.
But the group didn’t even do that.
Looking ahead the OPEC secretariat forecast non-OPEC supply next year to grow by more than the demand for oil.
That would squeeze the group even more, and aggravate the downward pressure on prices. Good news for OPEC’s customers but very bad news for the more hard-pressed of its members – including Iran, Venezuela and Nigeria.
But even for those like Saudi Arabia that can manage at current prices, there comes a point below which even they will start to get uncomfortable.
So it will be no great surprise if we are back here in Vienna for an extra, unplanned meeting before long.
Analysts suggest the strategy of maintaining output may be aimed at retaining dominance of the market in the face of increasing shale oil production in the United States.
The shale boom has been one of the drivers behind the decline in the oil price.
But as the oil price dips, shale becomes less economical to produce.
If oil prices are allowed to remain low for some time that could cap shale production over the longer term. So keeping oil prices low may in fact make sense for Opec.
“The Saudis want Opec to remain relevant,” said analyst Phil Flynn, speaking before the end of the meeting in Vienna. “The only way in their mind is to subdue the US shale producer.”
Opec accounts for a third of the world’s oil sales. (BBC)
