LONDON (Reuters) - Oil hit four-year lows around $70 a barrel on Thursday and commodity currencies were sent tumbling, as OPEC resisted the temptation to cut back production following the more than 30 percent plunge in prices since June.
Asked whether the oil producer group, which provides around a third of world supply, had decided not to reduce production, Saudi Arabian Oil Minister Ali al-Naimi told reporters: "That is right."
The meeting had lasted over five hours and as the decision emerged both Brent and U.S. crude prices were sent sliding as traders saw it as sign that OPEC members were effectively now in price war with each other.
Brent dropped to $71.58 and U.S. crude sank to $68.20 a barrel as both headed for $5 drops on the day, their biggest falls since May 2011. [O/R]
"Oil prices are now completely in the hands of the market," Dominic Chirichella, director of New York-based Energy Management Institute, told Reuters Global Oil Forum.
Europe's stock markets extended their gains on the day to 0.25 percent as the prospect of cheaper energy costs for both firms and strapped consumers added to Wednesday's signals from the European Central Bank that it is edging closer to government bond buying.
The case for ECB action had been underlined earlier as Spain and Germany both reported weaker-than-expected inflation figures. It points to another decline in the overall euro zone reading when it is published on Friday.
Lending to euro zone households and companies also fell again.
Speaking in Finland, ECB head Mario Draghi said the euro zone needs a "comprehensive strategy" including reforms by governments to get it back on track. Last week, Draghi in effect backed U.S.-style quantitative easing.
The comments and the data lowered the euro to $1.2463 and triggered a new set of record-low bond yields for the euro zone's biggest economies, with France's 10-year yields dropping below 1 percent for the first time.
Most market action, however, centered on the slide in oil.
Oil-rich Norway's crown hit a three-week trough of 8.6530 crowns per euro, Russia's rouble took another dive and Nigeria's naira continued to fall despite an 8 percent devaluation on Tuesday.
The huge slump in oil prices since June had made OPEC's meeting its most closely watched in decades. One member of the cartel told Reuters it will next meet in June.
Besides pushing down inflation in Europe, already close to deflation, the fall in prices is also hurting the economies, currencies and financial markets of many producer countries.
Ehsan Ul-Haq, a senior oil market consultant at KBC Energy Economics, in Vienna for the OPEC meeting, said he expected oil prices to now stay under $80 a barrel for the foreseeable future with a chance they could go below $70.
While the plunge in prices is bad for oil producing countries, it is generally viewed as a positive for global growth as it makes energy cheaper giving consumers more money to spend and reducing costs for firms.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent. Shanghai shares hit a three-year high, extending a rally that began after China cut interest rates last week. They are up 8.2 percent so far this month.
"The rate cut clearly showed the Chinese authorities are very much keen to support the economy. So even though Chinese economic data has been pretty weak, investors are convinced that there will be no hard landing," said Naoki Tashiro, the president of TS China Research.
Japan's Nikkei shed 0.8 percent as the yen recovered some ground against the dollar. The index has gained 5.1 percent so far this month, becoming the second-best performing market in the region after China.
Though trading was lighter than usual due to the Thanksgiving holiday in the United States, the dollar crept up as it fetched 117.54 yen, off last week's seven-year high of 118.98 yen, but still up more broadly.
It also saw gold, which is priced in dollars, dip for a second session as it held below $1,200 an ounce.
Outflows resumed from the top bullion exchange-traded fund, while a referendum in Switzerland on Sunday also kept the market cautious: a "yes" vote would force the Swiss central bank to buy about 1,500 tonnes of gold in coming years, analysts said.
(Addtional reporting by Hideyuki Sano in Tokyo; Editing by Andrew Roche)
OPEC might get the last laugh on oil (long-term strategy)
Here is another link: http://www.foxnews.com/world/2014/11/29/opec-keeps-oil-output-stead...
This is what I've said before: OPEC/Saudis are going to nip the budding shalers in the cost of a barrel. It may hurt them for a while but this will probably kill the minor companies. This I would guess will only take a couple of years.
Whether humble or haughty, your opinion is of interest.
Might there be for dry gas a silver lining in the dark clouds of the recent OPEC decision? If the Saudis and their allies are successful in crushing the shale oil boom in the United States, will we see a decease in the production of "associated gas?" If so, will that decrease be of such significance to provide a boost to natural gas prices? Will a decrease in the production of "associated gas" and a hoped for increase in natural gas demand due to export and increased domestic use boost natural gas prices? Finally, I wonder about the near-term feasibility of building new take away systems and distribution systems to the extent that the physical location of gas production might again be of relevance? Just for the record, as a property owner in the Haynesville and the TMS, I find no satisfaction or glee in the OPEC decision.
I don't see this changing the gas market. The "associated gas" in the TMS is insignificant as all of the drilling has been done in the "oil window" and any gas produced is "rich" gas not NG. The other areas I'm not sure about.
The Saudi Royal Family can't keep prices low forever - it costs them way too much loss revenue that is needed to adequately fund their many social welfare programs, which they depend on to keep their heads, literally. Consumption will quickly rise with the lower gasoline prices, supply will dwindle and demand will bring prices back up over time - then shale development will be profitable again. The Saudi's are, as always, trying to control the oil market, this time it is by starving out the competition - they are also attempting to head off any U.S. Congressional action to allow export of domestic crude and at the same time trying to cut the throat of Iran, since no one else is apparently willing to bomb them to prevent them from getting their own bomb. Shale's heretofore increasing volumes will ramp down, just as natural gas did, but, a time will come when shale development will be profitable again - sooner than later I hope. I look for very restrained drilling programs in the TMS and other shale plays focused on wells to HBP acreage in sweet spots until the price wars are over. Some of the weaker E&P companies will be bought out or go bankrupt if OPEC sticks to its current production levels for very long. Shale development will be in hibernation, but not wiped out for ever, as some seem to believe. The consumption beat will go on and the oil market will certainly return to the maximum price people are willing to pay - which was around $100 a barrel apparently. IMO
Steve, I haven't seen any comments to the effect that some believe that Shale development will be "wiped out forever" - here on GHS or in any of the Internet energy articles I have read. It is true that a number of OPEC members subsidize their economies and may face unrest at home however the Saudis are not among those most at risk. Iran and Venezuela come to mind as those most vulnerable as they don't have the money to last out a prolonged price war. Saudi Arabia on the other hand has a lot of accumulated wealth to fund their subsidies and has such low cost to produce a barrel of crude that they can still make a profit at these lower prices. Besides being the largest producer in OPEC they are the most prepared for a protracted period of low prices. The Saudis know the score and I think they know that they can not drive prices low enough nor keep them there long enough to stop development of the best US shale fields such as the Bakken and Eagle Ford.
I guess I may have exaggerated with the wipe out shale oil forever comment but it seems some are very anxious to announce it's death. The actions of OPEC are certainly being driven by the Saudis', who have the reserves to withstand low oil prices for a long while, however, even the Saudi's needed oil at about $83 per barrel to fund their 2012 budget. Venezuela and Iran, as you said, aren't as flush with cash and understandably aren't in support of what the Saudi's are doing - OPEC members will be even more at odds over this as revenues dry up. If the Saudi's know they can't stop development in the Baaken and EF as you said, and I agree, then it seems to me they have more than just hurting U.S. shale development as their motive in causing oil prices to plummet 30% in a few days. Since we don't export oil , it seems to me that the need to let prices fall dramatically and suddenly was not merited. I believe the Saudi's move has lot to do with putting financial pressure on Iran, and the Soviet Union to a lesser degree, since sanctions are not working fast enough to change either country's behavior and negotiations with Iran just failed again last week. A nuclear Iranian is a big threat to the Saudi's. This point is being echoed by some in the oil trading market and is given equal weight with the oversupply and market share arguments.
I don't know the true dynamics of it all but in my opinion supply and demand and market share are only a part of it. Maybe if Iran craters to demands to halt its development of a bomb or Putin stops supporting them, oil could be back to $100 before long. Predicting what will happen in the Middle East and predicting future oil prices is not an exact science, if history is any indicator. I think we can all agree on that.
The Saudis are simply defending their markets and market share from other OPEC members who refuse to curtail their production. It is unlikely under any scenario that the price falls far enough to make the Saudis cut production. They could last quite a long time on $50/barrel oil. If Iran and Iraq ever start exporting what they are capable of producing the glut will only get bigger and the price lower. Most energy analyst are predicting that the price slump will last at least a year. Simply ignore those who predict the death of domestic shale oil. It won't happen.
Why doesn't anyone blame Wall Street for keeping oil prices too high for months if not years. The Saudis and OPEC are pumping the same amount of oil today as they have for the last few years and yet all of the sudden Wall Street/CME has decided that the price was over $30 to high. With all the data out there about production and consumption, its not like people couldn't know the supply/demand picture and I find it hard to believe that the picture change that much in the last few months to alone cause the 30% price drop in the last few months. The oil market is a financial market and is subjected to extreme price movements just like individual stocks. Another issue caused by the financial markets is that a strong and strengthening dollar causes the price of oil to fall in US dollar terms.