By Matthew Cowley
NEW YORK--Oil prices tumbled to their lowest level in more than
four years on Thursday after the Organization of the Petroleum
Exporting Countries left output quotas unchanged.
Members of the oil producing group met in Vienna on Thursday and
agreed to maintain 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.
In response, light, sweet oil for January delivery fell $4.64,
or 6.3%, to $69.05 a barrel as electronic trading on the New York
Mercantile Exchange halted for the day. This was the lowest level
since May 2010. The Nymex floor was closed Thursday in observance
of Thanksgiving and will reopen on Friday, while electronic trading
was halted at 1 p.m. EST and will resume at 6 p.m. EST. Brent, the
global benchmark, fell $4.93, or 6.3%, to $72.82 a barrel on the
ICE Futures Europe exchange.
Oil's steep decline reflects the wide gamut of expectations
investors held for the OPEC decision, said John Kilduff, founding
partner of Again Capital in New York, which invests in energy
commodities. While some analysts argued OPEC, which accounts for
around one-third of world oil output, must make outright production
cuts to arrest the decline in oil prices, which are down more than
35% since June, others have doubted that the cartel would deliver
decisive action at the meeting.
"There's some disbelief here that there's absolutely no change
whatsoever," Mr. Kilduff said.
Still, the decision suggests the group is united in taking on
higher-cost producers like the U.S. shale oil industry, Mr. Kilduff
said. The rapid growth of this unconventional oil supply has remade
the landscape of the global energy market over the past five years,
bringing the U.S. closer to energy independence and pressuring
domestic oil prices. At the same time, sluggish global economic
growth has seen demand for the energy source lag behind supply,
weighing on the global oil benchmark.
"Oil is just hitting this market from all corners," Mr. Kilduff
said.
Some U.S. shale producers have already signaled plans to cut
capital expenditures next year. U.S. oil production has climbed by
roughly 1 million barrels a day, but this growth could be shaved by
25% to 750,000 barrels a day as a result of lower oil prices, Mr.
Kilduff said.
Still, oil prices must remain at current levels for at least a
month to have a significant impact on output plans of U.S.
shale-oil producers, said Tariq Zahir, managing member of Tyche
Capital Advisors in New York.
"It will take some time to have an impact," he said.
Some market watchers are now expecting much faster price
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 is based on 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."
Andrey Ostroukh in Moscow and Cassie Werber and Josie Cox
contributed to this article.
Corrections & Amplifications
Oil prices fell to their lowest level in more than four years
Thursday. An earlier version of this story incorrectly said oil
prices fell to their lowest level in five years.
Write to Matthew Cowley at matthew.cowley@wsj.com and Tatyana
Shumsky at tatyana.shumsky@wsj.com
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