Oil Extends Decline Below $40 as OPEC Abandons Production Target
Oil extended losses below $40 a barrel amid speculation a record global glut will be prolonged as OPEC effectively abandoned its longtime strategy of limiting production to control prices.
Futures dropped as much as 2.4% Dec. 7 in New York as energy companies led stock losses in Asia. The Organization of Petroleum Exporting Countries will keep pumping about 31.5 million barrels a day, President Emmanuel Ibe Kachikwu said Dec. 4 after a meeting in Vienna. The group is setting aside its output quota of 30 million barrels a day, a target it has breached the past 18 months, until members gather again in June.
Oil has slumped 40% since Saudi Arabia led OPEC’s decision in November 2014 to maintain output and defend market share against higher-cost U.S. shale producers. Global stockpiles have expanded to almost 3 billion barrels as the Saudis, Russia and Iraq increased supply, according to the International Energy Agency.
“The fight for market share in the global oil market stepped up,” said Michael Poulsen, an analyst at Global Risk Management Ltd.
OPEC has had a collective target of 30 million barrels a day since 2012. Most of the market “doesn’t have any ceiling,” Iraqi Oil Minister Adel Abdul Mahdi told reporters in Vienna on Dec. 4. “Americans don’t have any ceiling. Russians don’t have any ceiling. Why should OPEC have a ceiling?”
After the Dec. 4 decision, “everyone does whatever they want,” according to Iranian Oil Minister Bijan Namdar Zanganeh, who estimated the global surplus at as much as 2 million barrels a day. The Persian Gulf nation is seeking to boost crude exports next year when international sanctions over its nuclear program are removed.
The MSCI Asia Pacific Energy Index dropped as much as 2.6%, declining for a fourth day. Oil producers retreated, with BP declining for a seventh day in London and Royal Dutch Shell falling 2.7%.