by Tunji Andrews
The Organisation of Petroleum Exporting Countries, OPEC, has decided against reducing the global supply of crude oil, which had created a glut and subsequently crashed the price of the black gold, to a four-year low. It had been expected that on Thursday, members of OPEC, who met in Vienna, Austria, will instead put measures in place to halt the price slump of oil. This however, turned out not to be the case. Brent crude fell further on the news, dropping to $74.36 a barrel.
Following a five hour meeting the Saudi petroleum minister, Ali al-Naimi, told reporters that OPEC members will not reduce their oil output. Saudi Arabia indicated before the meeting that it wanted to maintain production at the current levels.
This was not all together shocking as Saudi Arabia’s oil Minister, al-Naimi had said he expected the market “to stabilize itself eventually,” hinting he wouldn’t push for a cut in OPEC’s production targets. This is a very clear indication that the Saudis and OPEC will do nothing at the meeting … It is not 100% rock solid or set in stone, but it is a very clear signal.”
This was even though analysts had indicated that OPEC would need to cut oil production much lower than its current ceiling for prices to make a significant recovery. Noting that Thursday’s OPEC meeting decisions on production supply levels was likely to set the tone for oil prices for the next few months and well into 2015.
The 12-member oil cartel typically steps in to adjust output when prices move sharply due to excess or insufficient supply. It currently has an oil production ceiling of 30 million barrels a day and has been producing in excess of this level in recent months.
Analysts now say that it is difficult to gauge how low oil prices will go this week, after this decision, but a range of $70-$72.16 for Nymex crude and $74.59-$76.75 for Brent crude is expected.
Other analysts have indicated however that this move was in alignment with OPEC’s strategy to ward off an offensive from shale gas producers, who would have found crude oil prices an incentive to come online. The shale boom has been one of the drivers behind the decline in the oil price, however, 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 makes sense for OPEC.
Also, Nigeria’s Petroleum Minister, Diezani Alison-Madueke, was elected the president of the international oil body. Mrs. Alison-Madueke, who makes history as the first female to be elected into the office, was elected just as members of OPEC began their meeting at the headquarters of the group in in Vienna, Austria, succeeding Libyan Vice-Prime Minister for Corporations, Abdourhman Atahar Al-Ahirish. She will serve a year as president.