OPEC decision: Winners and losers – USA TODAY
USA TODAY’s Kim Hjelmgaard reports from the OPEC Summit in Vienna. Oil prices fell sharply Thursday amid expectations the powerful oil collective OPEC will decide against intervening in global markets by cutting production levels.
VIENNA — The Organization of the Petroleum Exporting Countries chose not to cut oil production levels Thursday, pushing down oil prices and creating winners and losers in the process.
In the winners’ corner are the Arab Gulf states, led by Saudi Arabia. The kingdom is likely happy to let oil prices, down 35% since June, adjust on their own accord to maintain market share and revenue levels, said Nayef Nofel Shoshare, a Vienna-based oil expert.
OPEC’s largest producer may also be reluctant to show the world it fears the shale-based energy revolution that will lead the United States to become energy independent within the next two decades, according to the International Energy Agency.
The American gasoline consumer is another immediate winner. Regular gasoline averaged $2.80 a gallon Thursday, down from $3.29 a year ago, according to AAA, and will almost certainly fall further.
Crude oil prices plummeted over 6% to sit below $68 a barrel after OPEC said it would keep its production target at 30 million barrels a day. That’s the lowest price in more than four years.
In the losers’ corner are the Russians, South Americans and Africans, whose economies are highly dependent on a higher oil prices to keep the lights on.
Russia, which continues to suffer from economic sanctions over the fallout in Ukraine, needs higher oil prices to keep its economy from swooning. Oil and gas revenue accounting for nearly 50% of the government’s revenue. Declining energy prices had already sharply depressed the Russian ruble this year. Following Thursday’s OPEC meeting, it dropped another 3.6% against the U.S. dollar.
In Vienna, Venezuelan Oil Minister Rafael Ramirez effectively conceded defeat when he appeared to angrily storm out of the OPEC meeting once a no-cut decision was signaled.
Over half of officials from OPEC countries — the poorer half — were consistently on-message that the market is over-supplied and that something needed to be done. Nothing was done.
Shale-oil producers in the United States and Canada could also be hurt. Low crude prices make it harder for them to launch new drilling projects or expand operations because they count on high returns to finance the costly penetration and oil harvesting.
The other significant loser here may be OPEC itself.
For years it has dominated oil market discussions. It still does. But its powers — its ability to withhold output to get what it wants — are diminishing as other nations become better placed to diversify to other sources of supply.
U.S. production surpassed 9 million barrels a day this month — the highest mark since the U.S. Energy Information Administration began reporting rates in 1983. That, along with increased production in Canada, Brazil and the Caspian Sea region, is challenging OPEC’s traditional dominance, said Dominick Chirichella, founding partner of the New York-based Energy Management Institute, which provides market analysis of the industry.
Many analysts and industry experts in Austria this week said that every time OPEC fails to act it becomes even less relevant.