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OPEC accepts low oil prices

Cartel will keep output steady; some sellers suffer

Ali Ibrahim Naimi, Saudi Arabia’s minister of petroleum and mineral resources, speaks to journalists Thursday before a meeting of OPEC at its headquarters in Vienna. (Associated Press)
Ali Ibrahim Naimi, Saudi Arabia’s minister of petroleum and mineral resources, speaks to journalists Thursday before a meeting of OPEC at its headquarters in Vienna. (Associated Press)
George Jahn Associated Press

VIENNA – Reflecting its lessening oil clout, OPEC decided Thursday to keep its output target on hold and sit out falling crude prices that likely will spiral even lower as a result.

Oil prices fell sharply on the news. Even though the decision largely was expected, it showed the once-powerful cartel is losing the power to push up markets to its own advantage.

OPEC traditionally has relied on output cuts to regulate supply and prices. But it appeared to realize Thursday that with cheap crude in oversupply, a reduction only would cut into OPEC’s share of the market without a lasting boost in prices and with others outside the cartel making up the difference.

Instead, the move to maintain a production target of 30 million barrels a day appeared to reflect acceptance of the Saudi view within OPEC that short-term pain had to be accepted for later gain.

The Saudis and their Gulf allies hope to put economic pressure on rival producers in the U.S., which need higher prices to break even. In the long term, that could help reaffirm OPEC’s dominance of the oil market.

It also would be good news for consumers and oil-importing nations. The global price plunged $5 to a four-year low of $72.76 a barrel. As recently as June it was about $115.

Oil ministers had come to Thursday’s meeting facing two unpalatable choices: Cut their production from 30 million barrels a day in an effort to boost prices and see OPEC’s market share fall, or do nothing in hopes of riding out the crisis.

Paring output may not have been effective because supply from non-OPEC countries, like the U.S., remains high. Also, discipline within the 12-member organization is lax and overproduction by some members would have cut into the effectiveness of any production cut.

In any case, OPEC could not have afforded to scale back production by more than 1 million barrels a day – too little to make a sizable dent in supply.

OPEC Secretary General Abdullah Al-Badry suggested all members were on board with the decision to stick to the present output level, telling reporters “the ministers are happy.”

“I see no nagging from consumers, no nagging from producers,” he told reporters.

In fact, the decision once again appeared to reflect Saudi Arabia’s clout over less-powerful OPEC rivals.

By opposing an output cut, Saudi Arabia appears to be hoping to drive prices below the level at which shale oil production is economical, which experts say is $60 a barrel.

“When it comes to the raw decision-making, that is left to the unofficial leader, Saudi Arabia,” Alfa Energy Chairman John Hall said.

Accounting for about a third of OPEC output, the Saudis can weather lower prices because its coffers are well-padded and its production costs relatively low.

But poorer OPEC members like Venezuela and Nigeria need levels close to $100 or above to fund national budgets. Saudi rival Iran is suffering, too, with the price drop adding to huge revenue losses because of sanctions on its crude sales imposed over its nuclear program.

In the case of Venezuela, the International Monetary Fund says it needs to sell oil at about $120 a barrel to avoid the threat of national bankruptcy. Bank of America estimates that for every dollar that oil prices drop, the state loses $770 million in net revenue over a year. That puts revenue $12 billion a year below peak levels even if current prices don’t fall further.

Angola, Ecuador and other OPEC members with limited production also may suffer – not Saudi Arabia’s wealthy allies Qatar, the United Arab Emirates and Kuwait.

Iranian oil minister Bijan Namdar Zangeneh said the “OPEC decision was not entirely what we wanted,” and analysts suggested that others share that view.

“I think you’re going to see additional tension between the OPEC ranks,” said Jamie Webster, senior director of crude oil markets at IHS Consulting.

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