Oil prices retreat on expectations of weak OPEC action

November 28, 2014 – US oil prices today fell to a new four-year low on growing expectations that OPEC will not take significant action on Thursday in response to lower oil prices.

US benchmark West Texas Intermediate (WTI) for January delivery fell 40 cents to US$73.69 a barrel on the New York Mercantile Exchange, its lowest closing price since September 2010. European benchmark Brent oil for January delivery dropped 58 cents to US$77.75 a barrel in London.

Traders digested a plethora of statements from petroleum ministers ahead of Thursday’s meeting of the Organisation of the Petroleum Exporting Countries in Vienna. The gathering has been eagerly anticipated in light of the 30 per cent drop in oil prices since June.

But on balance, the remarks from Vienna are “leading many to believe OPEC is not going to do anything,” said Andy Lipow, head of Houston consultancy Lipow Oil Associates.

Saudi Oil Minister Ali al-Naimi was quoted saying he expects the oil market to “stabilise itself eventually,” a remark Dow Jones Newswires said suggested he did not see the need for major cuts.

Iran’s oil minister, Bijan Namdar Zanganeh, said his position was similar to Naimi’s, even as he expressed concerns about a glut. “All the experts in the markets believe that we have an oversupply on the market and next year we will have more oversupply,” Zanganeh said.

Analysts say the strongest statement from OPEC would be to cut the output ceiling from the current level of 30 million barrels a day. OPEC could also promise to address overproduction from members, who pumped 30.6 million barrels per day last month, according to the International Energy Agency.

A vague statement on improving quota compliance would have little impact, Lipow said. But a “bold” promise from OPEC with clear support from the Saudis for improving compliance would lift prices above US$80, he said. “If OPEC does nothing, I expect oil prices to very quickly go below US$70 a barrel for WTI and drift further down below US$65 towards US$60,” he said.