Oil Falls Towards 2015 Low On OPEC Inaction, Strong Dollar
Oil prices edged closer to 2015 lows on Monday after OPEC’s meeting ended without a reference to its output ceiling and a stronger dollar made it more expensive to hold crude positions.
The Organization of the Petroleum Exporting Countries (OPEC) ended its policy meeting on Friday without agreeing to lower production.
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 brokerage PVM Oil Associates in London.
Brent crude prices LCOc1, the globally traded benchmark, were down 53 cents at $42.47 a barrel at 1217 GMT, close to their 2015 trough of $42.23 and nearing more than six-year lows. U.S. crude CLc1 was trading at $39.14 a barrel, down 83 cents.
The dollar .DXY was up against a basket of currencies.
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 U.S. shale drillers that have piled up large amounts of debt.
Analysts at Commerzbank said any recovery in oil prices would be dictated not by OPEC but by rising demand and a fall in production outside of the group.
“Rising oil prices next year will not depend on OPEC reaching immediate agreement or on a return to price control, as we expect prices to increase primarily on the back of continued robust demand growth and a decline in non-OPEC oil production,” they said in a report.
Saudi Arabia, the world’s biggest oil exporter, is banking on producers of unconventional oil buckling in order for output to fall.
Saudi Aramco Chief Executive Amin Nasser said at a conference in Doha on Monday he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.
In a sign that U.S. production could dip, Baker Hughes’ November data showed U.S. rig count numbers were down by 31 month-on-month to 760 rigs.
Others disagreed. Patrick Pouyanne, CEO of French oil company Total, said at the same event he did not expect prices to recover next year as production growth was set to outstrip a rise in demand.
“It is not unreasonable to assume that downward pressure on prices will remain for the foreseeable future, as it will take time for low prices to materially scale back production,” said analysts at Cenkos Securities.
In a sign investors expect prices to remain weak over years to come, WTI forward contracts out to 2024 have dropped below $60 a barrel.