Oil prices fall to lowest in 7 years
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Oil prices fell to their lowest in nearly seven years yesterday after OPEC’s meeting ended in disagreement over production cuts and without a reference to its output ceiling, while a stronger dollar made it more expensive to hold crude positions.
The Organization of the Petroleum Exporting Countries failed to agree in its policy meeting on Friday to lower production in an attempt to stem prices that have dropped more than 60 percent since June 2014.
For the first time in decades, oil ministers dropped any reference to the group’s output ceiling, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.
“A stronger dollar and the aftershock of Friday’s OPEC meeting are weighing on the oil market,” said Tamas Varga, oil analyst at PVM Oil Associates in London.
Brent crude, the globally traded benchmark, traded down 92 cents at US$42.08 a barrel at 1439 GMT and touched a low of US$41.77, the lowest since March 12, 2009. US crude fell US$1.20 at US$38.77 a barrel, down 3 percent on Friday’s close.
The dollar was up against a basket of currencies after jobs data published on Friday bolstered the case for a rise in US interest rates this month.
Analysts at Barclays said the lack of an OPEC production target in its written announcement was a sign of discord.
“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.
OPEC’s output of more than 30 million barrels per day (bpd) has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure, especially small-sized US shale drillers that have piled up large amounts of debt.
Analysts at Commerzbank said any recovery in prices would be dictated not by OPEC but by rising demand and a fall in production outside of the group.
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