Again, Crude Oil Prices Drop to Fresh Four-Year Low

Brent crude now $71.12

The current volatility in the prices of crude oil at the international market continued yesterday as the price of Brent fell to a fresh four-year low, after the Organisation of Petroleum Exporting Countries (OPEC) refused to cut output, despite what is seen as a supply glut.

Brent crude was sold at a low price of $71.12 a barrel for January deliveries after settling at a four-year closing low of $74.36 on Thursday, when Saudi Arabia blocked calls from poorer members of the OPEC to cut production to stem a slide in global prices.

New York’s West Texas Intermediate (WTI) for January also slumped to below $70 yesterday. It was $70.87 on Thursday.

The drop in prices yesterday was the biggest one-day drop since May 2011.

It has also emerged that Saudi Arabia's Oil Minister told fellow OPEC members to combat shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.

Ali al-Naimi was said to have won the argument at Thursday's meeting, against the wishes of ministers from OPEC's poorer members such as Venezuela, Iran and Algeria which had wanted to cut production to reverse a rapid fall in oil prices.

The poorer members, who were however not prepared to offer big cuts themselves, yielded to Naimi's pressure to avoid a clash with the Saudis and their rich Gulf allies.

Naimi reportedly spoke about market share rivalry with the United States, making those who wanted a cut to understand that there was no option to achieve it because the Saudis want a market share battle.

Consequently, oil hit a fresh four-year low below $72 per barrel yesterday as a boom in shale oil production and weaker growth in China and Europe have sent prices down by over a third since June.

OPEC’s Secretary General, Abdullah al-Badri also confirmed OPEC was entering a battle for market share.

In a communiqué at the end of the meeting, OPEC said it reviewed the oil market outlook, as presented by the Secretary General, in particular supply/demand projections for the first, second, third and fourth quarters of 2015, with emphasis on the first half of the year.

The body also considered forecasts for the world economic outlook and noted that the global economic recovery was continuing, albeit very slowly and unevenly spread, with growth forecast at 3.2 per cent for 2014 and 3.6 per cent for 2015.

It also noted, importantly, that, although world oil demand is forecast to increase during the year 2015, this will, yet again, be offset by the projected increase of 1.36 million barrels per day in non-OPEC supply.

Recording its concern over the rapid decline in oil prices in recent months, the conference concurred that stable oil prices at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing.

Accordingly, in the interest of restoring market equilibrium, the OPEC decided to maintain the production level of 30 mb/d, as was agreed in December 2011.

Before the meeting, there were expectations from the global oil and gas industry that the cartel would effect production cuts of between one million barrels per day and 500,000 barrels per day in response to the falling oil prices.