By Matthew Cowley
LONDON--Benchmark oil prices fell sharply on Thursday in
European trading to the lowest levels in five years as the
Organization of the Petroleum Exporting Countries refused to draw
any line under the recent sharp price declines.
The members of the oil-producing group met in Vienna on Thursday
and maintained their existing production limit of 30 million
barrels a day, although some OPEC members often exceed their
production quotas. The 12 member countries on Thursday said they
would comply with the limit, which might lead to a decline in
production of about 300,000 barrels a day, according to OPEC's own
data.
Analysts have argued that OPEC, which accounts for around
one-third of world production, must make outright production cuts
to arrest the decline in oil prices, which have fallen more than
35% since June.
Speaking after the meeting, however, OPEC officials didn't
suggest any levels that would prompt the member nations to take
action. Without that guidance, traders and analysts were left
disoriented.
OPEC is "forfeiting its role as swing supplier" said Harry
Tchilinguirian, senior oil analyst at BNP Paribas. Saudi Arabia,
the largest producer within OPEC, is "leaving it to the market to
readjust balances though prices," he said.
The U.S. contract for January crashed through the key level of
$70 per barrel, and was down $4.58, or 6.2%, at $69.13 a barrel on
the New York Mercantile Exchange, its lowest level since September
2009, while the global Brent contract for January fell $4.93, or
6.3%, to $72.82 a barrel on the ICE Futures Europe exchange.
U.S. markets were closed for the Thanksgiving holiday.
Some are now expecting much faster declines ahead. Torbjørn
Kjus, an oil analyst at DNB Bank, said that without any agreement
to cut production in real terms, the price of Brent "will probably
fall down into the 60s [dollars per barrel] before Christmas."
Thursday's meeting turned out to be about as "bearish" as it could
have been, and OPEC is sending a "strong signal that the market
will be left to itself," he said.
Russia, the world's third largest oil producer and a major oil
exporter that is not a member of OPEC, was quick to respond. The
country's finance ministry said it would probably have to revise
its budget assumptions--the budget for 2015 at an average oil price
of $100 per barrel.
"In the past several days we have observed that an absence of
determination to limit volumes of extraction by OPEC has led to a
further negative pressure on oil prices," said Maxim Oreshkin, head
of strategic planning department at the finance ministry. "The
market remains in a condition of oversupply and the current [OPEC]
decision means that the issue won't be solved quickly."
ICE gas oil for December changed hands at $668.25 a metric ton,
down $26.50. Gasoline for January delivery was down 5% at $1.9407 a
gallon.
Andrey Ostroukh in Moscow and Cassie Werber and Josie Cox
contributed to this article.
Write to Matthew Cowley at matthew.cowley@wsj.com
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