VIENNA--OPEC members rejected calls for drastic action to cut
their oil output, keeping their production ceiling unchanged and
suggesting the cartel is bracing for lower prices longer term.
The decision on Thursday sent crude prices into a tailspin and
spilled into currency and European stock markets. If Thursday's
market rout proves lasting, it will provide more relief to
consumers in gasoline-guzzling countries like the U.S. But it is
hammering the finances of big oil producers, from Russia to
Venezuela, and biting into profit at oil companies big and
small.
The 12-member Organization of the Petroleum Exporting Countries,
who collectively pump more than one-third of the world's oil,
agreed at their meeting in Vienna to stick to the group's current
target of producing 30 million barrels a day.
Since the cartel is currently pumping more than its ceiling, the
decision--backed by a commitment from OPEC members to comply with
it--implies a cut of around 300,000 barrels a day, based on OPEC's
own figures. That would put only a relatively small dent in global
oil supply even if implemented, and the group has exceeded its
ceilings most quarters since late 2011.
The decision sent oil prices tumbling, with the West Texas
Intermediate benchmark falling below $70 a barrel for the first
time in more than four years. Oil for January delivery fell $4.64,
or 6.3%, to $69.05 a barrel as electronic trading on the New York
Mercantile Exchange halted at 1 p.m. Thursday. The Nymex floor was
closed Thursday in observance of Thanksgiving. The global Brent
contract for January fell $4.93, or 6.3%, to $72.82 a barrel on the
ICE Futures Europe exchange.
Currencies of major oil producing countries slid, with the
Russian ruble hitting a record low against the euro and nearing an
all-time low against the dollar. Share prices of major European oil
companies dived, with Royal Dutch Shell PLC down 4.3%, Total SA off
4.1% and BP falling 2.7%.
OPEC Secretary-General Abdalla Salem el-Badri said he was sure
OPEC members would "abide by" the group's production target.
Speaking to reporters, Venezuela's foreign minister Rafael Ramirez
said the rollover was "the first step.. to reduce our production,"
a view that was echoed by Gulf delegates.But faced with a gusher of
new oil supply--mainly from the U.S. thanks to the shale
revolution--and weaker global oil demand, OPEC's muted response
caused some to question the five-decade old cartel's relevance.
Analysts had estimated OPEC would need to take 1 million to 1.5
million barrels a day off the market to support oil prices, which
have fallen by more than 30% since the summer.
"The outcome of today's meeting marks a watershed for the oil
market, "OPEC is clearly signaling that it will no longer bear the
burden of market adjustment alone and this decision puts the onus
on other producers, especially U.S. tight oil, to adjust as well,"
oil analysts at Barclays said.
The absence of stronger OPEC action makes a rebound in oil
prices less probable, putting more strain on oil-producing
countries which became used to oil prices above $100 a barrel for
much of the time since early 2011. Among OPEC's members, only Qatar
and Kuwait will be able to balance their budgets next year with
prices at their current level.
The biggest losers from the current price trend could include
Russia, which is already suffering from an economic slowdown and
feeling the effects of both lower oil revenues and Western
sanctions imposed because of the Ukraine conflict.
But the drop in prices has helped consumers in developed
countries such as the U.S. heading into the holiday shopping
season. Lower prices at the pump and on heating bills give
consumers more money for discretionary items such as restaurant
meals, electronics and haircuts.
The decline in gas prices over the last six months is equivalent
to a $75 billion tax cut in the U.S., said economists at Goldman
Sachs in research published Wednesday. Falling fuel prices also
reduce production and shipping costs for an array of U.S.
manufacturers, farmers and businesses.
"The benefit to the economy is quite significant," said Joseph
Carson, economist at Alliance Bernstein.That windfall also accrues
over time."It's accumulating every one or two weeks that you go to
the pump." he said.
The national average for regular gasoline fell to a four-year
low of nearly $2.80 a gallon on Thursday, according to auto club
AAA. Gas prices were as high as $3.68 at the end of June.
Cheaper oil is a rare piece of good news too for Europe's
biggest economic bloc, the euro currency area, since the region is
a big oil importer. Lower oil prices, though slightly offset by the
euro's weakening against the dollar, should boost the spending
power of Europe's consumers, still suffering from high unemployment
amid the eurozone's long slump.
Dwindling oil prices could complicate life for the European
Central Bank, however, because they could drag inflation even
further below the ECB's target of just under 2%. The ECB is already
struggling to lift inflation expectations, which could fall further
along with oil and other energy prices.
Many of Asia's emerging economies are also oil importers and
thus stand to benefit. Falling oil prices are "a real boon for some
countries in Asia, including India, which has a fragile
current-account situation," says Eric Chaney, global chief
economist at AXA Group in Paris.
OPEC's relative inaction, meanwhile, leaves the oil industry,
particularly U.S. producers, "in this waiting game, like a game of
chicken," said Nasdaq energy analyst Tamar Essner.
While some, including ConocoPhillips Co., have already announced
plans to spend less in 2015, many more won't unveil next year's
budget for several more weeks.
In Canada, industry officials said the slide in prices wouldn't
likely lead to immediate production costs. Suncor Energy Inc.,
Canada's largest oil sands producer, still expects crude to recover
to "the $90 to $100 range," chief executive Steve Williams
said.
But others there were less sanguine. "Clearly there is a risk of
deferral of investment decisions in an environment where prices
remain low," said Jim Prentice, the premier of oil-rich Alberta
province. "In a persistent low-price environment there will be
consequences for all of us."
It remains unclear how OPEC will now enforce its own production
limit. OPEC has exceeded its 30 million barrels a day target most
quarters since it was announced in December 2011 through 2013.Its
production this year through October averaged 30.1 million barrels
a day, based on data from the International Energy Agency.
OPEC's production target rollover is a compromise solution
designed to meet the conflicting pressures on its members. Though
OPEC has been through periods of intense infighting, longtime
observers say the group has rarely been as divided as during the
weeks running up to Thursday's meeting.
While most OPEC countries want to see global oil supply reduced
to help boost prices, most individual members have been unwilling
to cut their own production for fear of losing crucial oil-related
income and market share. Algeria and Venezuela said they would cut
their own production if a collective cut is agreed.
Another problem for OPEC is that if it were to cut production
sharply, resulting higher oil prices might only help incentivize
yet more production from U.S. shale oil leading OPEC to lose more
of its share of global markets.
Iraq's oil minister Adel Abdul-Mehdi said OPEC was left with
little choice but to maintain its production target, saying a
deeper cut might not raise prices and could result in countries
losing market share.
A dispute between OPEC's Gulf state members and Venezuela caused
Thursday's meeting to last longer than normal, delegates said.
Venezuela, which will need oil prices at $117.50 a barrel to
balance its government budget next year according to Deutsche Bank,
proposed a sharp output cut, according to people familiar with the
meeting. Beforehand its representative Mr. Ramirez told reporters
he wanted two million barrels a day of oversupply out of the
market.
That idea was aggressively opposed by OPEC's Gulf members, led
by the group's largest producer, Saudi Arabia, which has sought to
maintain its market share--a third of OPEC's total production--by
cutting prices in recent months.
"The cause of oversupply is not OPEC, it's shale oil," said one
Gulf oil official, who said that Venezuela eventually backed down.
Mr. Ramirez couldn't be reached for comment.
After exiting the meeting, ministers admitted the discussion had
been difficult.
"If we were fully in agreement it would take, what, 5 minutes
but it took four hours," Iraq's Mr. Abdul-Mehdi told reporters at a
press briefing.
Nigerian oil minister Diezani Alison-Madueke told reporters, "A
lot of us are feeling the pain right now."
Nick Timiraos, Nicole Lundeen and Marcus Walker contributed to
this article.
Write to BenoƮt Faucon at benoit.faucon@wsj.com, Summer Said at
summer.said@wsj.com, Sarah Kent at sarah.kent@wsj.com and Nicole
Lundeen at nicole.lundeen@wsj.com
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