Brent crude fell below US$40 a barrel for the first time in almost seven years after OPEC effectively abandoned any limits on crude output, prompting speculation that a record global glut will continue.
Prices fell to the lowest since Feb. 20, 2009, dropping for a third day after the Organization of Petroleum Exporting Countries decided to keep pumping oil at current rates during a Dec. 4 meeting. West Texas Intermediate crude, the U.S. benchmark, also declined to the lowest since 2009, before making a rebound.
Oil has slumped about 40 per cent since Saudi Arabia led OPEC’s decision a year ago to maintain output and defend market share by pressuring higher-cost producers. At last week’s meeting in Vienna, the group set aside its production target of 30 million barrels and endorsed current output of about 31.5 million. The lack of any limit on OPEC supplies could lift the lid on millions of barrels of additional crude from countries including Iran next year.
“The market is confirming the idea that we have excessive supply,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “Demand is not strong enough to ease the oversupply.”