OPEC’s decision last week not to coordinate production cuts has sent global oil prices spiraling downwards from already remarkably low levels, and today Europe’s Brent crude benchmark is trading below $40 per barrel while America’s West Texas Intermediate (WTI) benchmark sits just below $37. Prices are at their lowest point since the aftermath of the 2008 financial crisis, but while the oil market staggers, OPEC is acting like it’s business as usual, even upping production last month. The FT reports:
The producer group’s monthly oil market report on Thursday said output increased to 31.7m barrels a day last month, up from 31.5 the previous month, according to secondary sources who track member output. […]
The cartel’s November increase was led by output from Iraq, which has hit record levels in recent months. Iraqi production rose to 4.3m b/d in November from 4.1m b/d the month before as it pumps hard to raise funds to fight Isis and provide some support to its fragile economy.
The cartel hopes that non-OPEC producers (like American shale companies) will be forced to close up shop any day now when their relatively high-cost projects become no longer profitable in a bearish market made even more so by their policies. And to an extent, that plan is working: monthly U.S. crude production is down roughly 200,000 barrels per day from an April high, and while non-OPEC supplies are still expected to grow this year, forecasts for that growth are being revised downwards in light of these new price realities.
But these quasi-victories for OPEC won’t mollify its poorer members, many of whom have long agitated for the cartel to cut production and set a price floor. OPEC expects an increase in demand next year, but even that hope rests on shaky ground, as historically these sorts of predictions rarely get it right. We’re heading into 2016 awash in oil, and there’s no clear sign that movement on either the demand or the supply side of the market will drive prices up. Welcome to the brave new world of $40 crude.