The Organization of Petroleum Exporting Countries (OPEC) said Wednesday it expected global demand for its crude oil to fall next year to the lowest level in more than a decade, citing expanding output from U.S. shale producers.
The price of Brent crude, the international benchmark, plunged as much as 4.9% to $63.56 a barrel in London after OPEC forecast in a monthly report that demand will drop to 28.92 million barrels per day in 2015. That’s down down 280,000 bpd from its previous expectation and more than 1 million bpd less than it is currently producing.
The producer group has so far refused to prop up prices by cutting production. “Why should I cut production?” Ali Al-Naimi, Saudi Arabia’s oil minister, told reporters today. “This is a market and I’m selling in a market. Why should I cut?”
As Bloomberg reports, Saudi Arabia, Iraq and Kuwait — OPEC’s three largest members — have been offering oil to Asian buyers at the deepest discounts in at least 6 years.
Crude oil prices have slumped 17% since OPEC agreed on Nov. 27 to maintain a 30 million-barrel-a-day production target. According to secondary sources cited by the group, there will be a surplus of 1.13 million bpd in 2015, and 1.83 million bpd in the first half.
“Naimi can’t change policy within two weeks of an OPEC meeting, they’ve got to stick it out for at least a quarter to make it obvious that non-OPEC can’t rely on high and stable prices,” Paul Horsnell, head of commodities research at Standard Chartered Plc, told Bloomberg.
U.S. shale oil needs relatively high prices to be economic and has been eroding OPEC’s market share, Reuters noted.
In reducing its 2015 demand forecast, OPEC cited a weaker outlook for Europe and Asia and predicted supply from shale and other non-OPEC sources will rise by 1.36 million bpd in 2015, led by the U.S.
An Iranian Oil Ministry official said Tuesday that any break in OPEC solidarity or a price war will lead to an “enormous price-dive shock” that would push oil to $40 or $50.
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