Oil prices slumped by more than 5% on Monday after OPEC decided to not cut production. The decision ultimately has sent crude to its lowest level since the depths of the global financial crisis almost seven years ago.
Shares in energy companies lost ground as the impact of the drop in oil prices rippled through stock markets. Prices of other commodities also weakened following disappointment among traders on OPEC’s Friday decision.
Industry research and consultancy firm Wood Mackenzie noted that “the 4 December OPEC meeting ended without a decision to cut production and without an agreement to raise the output ceiling. Instead a vaguely worded communique was released and a short press conference held. The group is apparently ratifying current output levels and an attempt was not made to adjust the target for Indonesia’s re-joining OPEC at this meeting.”
“OPEC went for the no surprise outcome, no output cut, but rumours of possible production cuts and even an increase in the ceiling flew through the OPEC rumour mill ahead of the Friday afternoon press conference. That part was great political theatre and reflected the disagreements in the group. While it is taking longer than expected and prices are falling more than OPEC may have hoped, the group is going to continue its policy of seeking market share and letting the oil price sort out the winners and losers. “
The outcome is not a surprise because Saudi Arabia has made it clear since the November 2014 OPEC meeting, “that it will not cut its output unless other producers such as Iran, Iraq, and Russia also reduce theirs.”
Here are Wood Mackenzie’s take away points from Friday’s OPEC meeting: