The Organization of the Petroleum Exporting Countries met in Vienna, Austria Friday to discuss policy, and the group appeared unlikely to cut oil output levels, which could exacerbate global oversupply.
The Organization of the Petroleum Exporting Countries, an intergovernmental cartel of some of the world’s top oil producing nations, met in Vienna, Austria Friday Nov. 4 to discuss policy.
The group appeared unlikely to cut oil output levels despite crude oil prices nearing record lows.
Brent crude, the global benchmark for oil prices, fell sharply Friday on the news and was trading at close to $43 a barrel at the time this article was published. Earlier this week, Brent dropped to $42.43, only a few cents higher than a 6-year low set in August.
West Texas Intermediate, the benchmark for domestic U.S. oil, dipped below $40 a barrel in early morning trading, hitting a five-year low of $39.78 before rebounding slightly.
Crude oil prices have plummeted in 2015 amid slowing demand growth and growing global oversupply. Based on Thursday’s closing price of $43.84 per barrel, Brent crude has fallen 61.8 percent from $114.81 per barrel in June 2014.
Things might be improving slightly on the demand side, however, as China, the second largest consumer of energy products, is likely to double its strategic crude oil purchases next year to take advantage the low prices, according to reports from news service Reuters. A Reuters survey revealed Beijing will add 70-90 million barrels of crude to its storage tanks in 2016 to build up its strategic petroleum reserves.
OPEC’s poorer countries have been attempting to put pressure on its wealthier members like Saudi Arabia to cut production and stem the falling prices. Saudi Arabia and its allies, however, indicated Friday they will stay the course and continue to defend market share in the hopes that lower prices will drive some of the lower end of the industry out of business. This strategy could ultimately result in a decrease in global supply that drives oil prices higher, but there are a lot of “ifs” involved in that scenario.
The Saudi oil minister has said previously the country would consider cutting production only if fellow OPEC members Iraq and Iran agreed to cooperate, as well as non-OPEC countries such as Russia.
The price of oil has widespread effects on the shipping industry, as lower fuel prices mean lower operating costs for carriers. In theory, this should translate to lower rates for shippers, though this has not always proven to be the case. For trucking carriers, for example, lower oil prices actually equate to a decrease revenues from fuel surcharges.
Railways are major haulers of North American petroleum products, and the fall in prices has suppressed volumes and hurt their bottom line in 2015 as production in area like the Bakken oil fields in North Dakota, Montana and parts of Southern Canada have dropped significantly.
In the case of ocean freight, rates have fallen dramatically across all the major east-west trades over the course of the year, but this has more to do with overcapacity issues caused by the ever-increasing size of containerships than it does with the falling price of oil.
OPEC’s 13 members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
OPEC to maintain production despite falling crude prices
