From AP.org:
OPEC keeps oil output on hold despite low prices
by George Jahn
VIENNA (AP) — Reflecting its lessening oil clout, OPEC decided Thursday to keep its output target on hold and sit out falling crude prices that will likely spiral even lower as a result.
Oil prices fell sharply on the news. Even though the decision was largely expected, it showed the once-powerful cartel is losing the power to push up markets to its own advantage.
For the first time in years, expect even cheaper oil prices. However:
By opposing an output cut, Saudi Arabia appears to be hoping to drive prices below the level at which shale oil production is economical. Experts say shale oil production turns too costly at the $60 a barrel level.
This is OPEC attempting to shut down oil shale production and protecting their own production interests in the Middle East. From Bloomberg.com:
OPEC Policy Ensures U.S. Shale Crash, Russian Tycoon Says
by Will Kennedy and Jillian Ward
OPEC policy on crude production will ensure a crash in the U.S. shale industry, a Russian oil tycoon said.
The Organization of Petroleum Exporting Countries kept output targets unchanged at a meeting in Vienna today even after this year’s slump in the oil price caused by surging supply from U.S shale fields.
American producers risk becoming victims of their own success. At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable for some explorers, Leonid Fedun, vice president and board member at OAO Lukoil (LKOD), said in an interview in London.
A short-sighted administration — such as Obama’s — would and will make hay out of this news in a renewed attempt to ensure Keystone XL does not pass. But of course this situation is no guarantor that energy prices couldn’t rise back and the nation be in another desperate situation with regard to energy, as “alternative energy” is not yet of sufficient stature to be viable and reliable.
Accounting for about a third of OPEC output, the Saudis can weather lower prices because their coffers are well-padded and its production costs are relatively low.
But poorer OPEC members like Venezuela and Nigeria need levels close to $100 or above to fund national budgets. Saudi rival Iran is suffering, too, with the price drop adding to huge revenue losses due to sanctions on its crude sales imposed over its nuclear program.
“I think you’re going to see additional tension between the OPEC ranks,” said Jamie Webster, senior director of crude oil markets at IHS consultants.
Enjoy gas prices whilst you can.
BZ
