Oil price plunges, dividing Opec members at meeting
A landmark Opec meeting ended with angry scenes after the cartel’s members agreed to leave oil production quotas unchanged, sending crude prices plummeting, and creating fresh uncertainty for the world’s biggest oil producers and their political fortunes. Venezuela’s representative to the Organisation of Petroleum Exporting Countries, Rafael Ramirez, stormed out of the secretariat in Vienna on Thursday, after his proposal to make deep cuts was rejected by Opec kingpins Saudi Arabia and a clutch of Gulf Arab producers.
Oil prices are at their lowest levels since September 2010, in part due to oversupply, lower demand and a boom in North American production. Weaker oil prices affect the revenues – and relative power – of a number of oil-producing countries such as Russia and Venezuela and the Gulf States, which often channel funds to governments and factions through the volatile Middle East. Chief executive of international energy consulting firm PIRA Energy Group, Garry Ross, said it was a “new world for OPEC” because it could no longer manage the market.
The Saudis and their Gulf allies hope to put economic pressure on rival producers in the U.S., which need higher prices to break even. In the long term, that could help reaffirm OPEC’s dominance of the oil market. It would also be good news for consumers and oil-importing nations. The global price plunged $5 to a four-year low of $72.76 a barrel. As recently as June it was around $115.
Oil ministers had come to Thursday’s meeting facing two unpalatable choices: Cut their production from 30 million barrels a day in an effort to boost prices and see OPEC’s market share fall, or do nothing in hopes of riding out the crisis. Paring output may not have been very effective because supply from non-OPEC countries, like the U.S., remains high. Also, discipline within the 12-member organization is lax and overproduction by some members would have cut into the effectiveness of any production cut. Analysts said Opec’s decision left the oil market vulnerable to much bigger falls, as an abundant supply of high quality, light crude oil flooded world markets, much of it from newly emerging shale oil in North America.
“Opec has chosen to abdicate its role as a swing producer, leaving it to the market to decide what the oil price should be,” said Harry Tchilinguirian, a senior strategist at BNP Paribas. “Saudi Arabia and Opec will have to live with a prolonged period of low prices for any dent in US shale or production levels to happen.” Opec’s decision hit shares in oil companies in Australia and in London, which dominated the fallers in the London market.
