Friday, November 28, 2014
Oil price dives as OPEC rolls out "do nothing" strategy
The price of oil collapsed overnight after OPEC nations decided against cutting production to prop up dwindling values.
And expectations are that crude prices might go even lower after the usually powerful Gulf producers decided to do nothing.
Listen to my report on The World Today
The deepening oil slide has hurt energy companies around the world and some big names in Australia have seen their share prices dive this morning.
Santos fell ten percent, Tap Oil nine percent and Oil Search was almost eight percent lower in late morning trade.
Despite the oil price sliding in recent months, weeks and days, there were low expectations for today's meeting of OPEC oil ministers in Vienna.
Not surprisingly the 12 member cartel delivered on that anticipation and maintained production of 30 million barrels a day, holding firm in the face of too much oil chasing too few customers and and growing pressure to tighten the oil tap.
So how low can the oil price go before OPEC bends to self interest and counters with lower supply to prop up the price?
OPEC secretary general Abdulla el-Badri wouldn't put a number on it and said he was relaxed - for now anyway.
"There's a price decline. That does not mean that we should really rush and do something," Mr el-Badri told reporters.
"We don't want to panic. I mean it. We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change."
OPEC's decision to "do nothing" only sent the oil price lower.
West Texas Intermediate crude went to US$69 a barrel having fallen by a third this year.
Brent crude fell to its lowest level since 2010 shortly after the OPEC decision became public.
Analysts say that OPEC is being forced to let market forces apply and unable to use its traditional muscle because of slowing growth in Europe and China.
An even bigger complication is the United States - which is on its way to oil independence with local production of shale oil at a three decade high.
While OPEC's heavy hitters - Saudi Arabia, Kuwait and the UAE - are driving the "do nothing" strategy, smaller member nations are furious.
Venezuela - which relies on a high oil price to underpin government finances - is said to have stormed out of the meeting after the OPEC kingpins refused to cut production.
Wall Street was closed for the Thanksgiving Day holiday but elsewhere financial markets were hit hard.
Russia's ruble went to a record low and energy stocks in London were hit hard.
The Australian dollar is also a casualty of the oil price price - down to 85.1 US cents.
It's become a test of nerves for OPEC and oil investors.
So will OPEC blink before the global oil glut really starts to hurt?