OPEC to keep pumping crude, sheds symbolic output ceiling

HOUSTON – U.S. crude fell below $40 a barrel on Friday as the Organization of Petroleum Exporting Countries said it wouldn’t give up a drop of oil to support prices, setting up another tough year for a petroleum industry that has already shed thousands of jobs and cut billions in oil projects.

Without dramatic production cuts by OPEC, it’ll probably take until the end of 2016 for the market to see a rebalance of supply and demand, because of weakening oil-demand growth and the apparent resilience of crude suppliers outside of the 12 OPEC nations, Goldman Sachs said.

OPEC didn’t provide an official production ceiling in a communique or a press conference after its semi-annual meeting in Vienna, but said its output would remain around current levels because production cuts wouldn’t move the oil market enough.

“The world dynamics have changed,” OPEC President Emmanuel Ibe Kachikwu said in a press conference. “We need to look to non-OPEC members to join us in this stability drive.”

U.S. benchmark West Texas Intermediate crude ended Friday’s trading down $1.11 to $39.97 on the New York Mercantile Exchange.

Abandoning an official output ceiling effectively codifies what OPEC has already done for the past year: ignore its previous target of 30 million barrels a day. The group of 12 oil exporters produced 31.38 million barrels a day in October, up by more than 1.3 million barrels a day since last year.

OPEC said it would decide on an official production number at its next gathering in June, after it monitors the market amid a return to higher production levels by Iran sometime after western powers lift economic sanctions against the Islamic Republic.

“We need to see what Iran brings to the market. We felt comfortable that we just need to wait and watch at this time,” Kachikwu said.

When asked about negotiations between the Saudi Arabia-led cartel and OPEC outsiders including Russia to jointly reduce crude production, Kachikwu said the group’s first impressions were “50-50.” “There have been signs of cooperation, signs of reluctance,” he said.

OPEC Secretary General Abdallah Salem el-Badri said that after meeting with nations outside of OPEC to gauge whether others would be willing to cut production alongside OPEC, the group “had a positive reply, but everyone is trying to digest how they can do it.”

Over time, though, OPEC expects outsiders will be able to figure out how much they can contribute to a joint cut, he said.

Earlier in the day, crude prices had fallen amid reports OPEC would raise its daily output ceiling by 1.5 million barrels to 31.5 million barrels, a move traders interpreted to mean OPEC would put more oil on the market and worsen a global oversupply. Analysts speculated the group was making room for incoming member Indonesia.

Indonesia, which produced an estimated 789,000 barrels a day last year and has 3.7 billion barrels in reserve, originally joined OPEC in 1962 and left the group in 2009. Its return became official on Friday.

Iran expects to put at least 500,000 barrels a day back into international markets next year after international sanctions are lifted.

Production from Iraq and Saudi Arabia has surged this year, keeping global oil supplies ahead of rising crude demand. OPEC expects crude demand and supplies to come more into balance next year, with demand for OPEC crude climbing by 1.2 million barrels a day to an average 30.8 million barrels a day.

“If we’d said then that a year later we’d find oil prices hovering just above $40 a barrel with little prospects of rising much higher any time soon, I think perhaps people wouldn’t have believed you,” said Neil Atkinson, an analyst at Lloyd’s List Intelligence, during the live webcast from the conference in Vienna. “But the year we’ve had in 2015 has been astounding.”

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