Oil prices fell to their lowest level in over five years Thursday as the cartel that produces one third of the world's output failed to agree on measures to tackle the current glut.
In what had been billed as their most important meeting in decades, ministers from the Organization of Petroleum Exporting Countries agreed to keep their self-imposed output ceiling at 30 million barrels a day, but promised each other they would cheat less on their agreed quotas.
Such promises have rarely held in the past, and the markets reacted by driving the price of the benchmark crude futures contract down nearly 8% to below $69. Oil hasn't been that cheap since August 2009. Prices have now fallen by over 30% since the summer, and by 13% in November alone.
That's going to make a Happy Thanksgiving for drivers, who are already seeing pump prices of under $3/gallon in the U.S., as well as for airlines, logistics companies, plastics and chemicals companies, all of whom have huge outlays on fuel and oil-based feedstocks. It's also good news for retailers, who will hope to benefit from the fact that consumers have more disposable income.
But it's less good news for the shale oil industry, which may find at least some of its investments losing money as the oil price heads firmly lower.
Thursday's decision effectively sets the level of OPEC output for the whole of the first half of next year, news agencies quoted Abdalla El-Badri, OPEC's Secretary-General, as saying. If that's true, then any reduction in world output will likely be driven by marginal fields in the U.S.
The decision is a victory for Saudi Arabia, which can better afford to play a long game with U.S. producers than its poorer colleagues in OPEC, such as Venezuela and Iran.
"It was a great decision," Reuters quoted Saudi Oil Minister Ali al-Naimi as saying as he emerged smiling after around five hours of talks.
According to the Paris-based International Energy Agency, the cartel's 12 members are currently produced 30.66 million barrels a day in October, so even if they were completely faithful about sticking to their quotas, they still wouldn't cut output by enough to bring it into line with global demand for their oil, which the IEA puts at 29.3 million b/d next year.
Some of the OPEC ministers have made no secret of their desire to use a lower price to stop the rise in oil production from U.S. shale, which along with other "non-OPEC" sources of supply is running way ahead of demand from a world economy that has palpably slowed down this year.
The United Arab Emirates' oil minister Suhail bin Mohammed al-Mazroui told the Financial Times Wednesday that the market would correct itself and that "there is nothing to cause us to panic."
That wasn't quite the view from countries that need a higher oil price to balance their budgets. The Russian ruble fell to a new all-time low on the news, with the dollar crashing through 48 rubles and the euro topping 60, both for the first time ever. The benchmark RTS stock index fell 2.1% close to a new five-year low.
Russia needs an oil price over $100/bbl to balance its budget. But the news agency Interfax quoted Maxim Oreshkin, a senior finance ministry official, as saying that even a forecast of $80 was "moderately optimistic" for the next years, in view of OPEC's decision.