OIL PRICES: FURTHER DECLINES

Brent and West Texas Intermediate crudes fell to the lowest level in more than four years after OPEC failed to cut its output in response to a glut.

Both grades capped the biggest monthly drops since 2008. OPEC will maintain its collective output target at 30 million barrels a day, Saudi Arabia's Oil Minister Ali Al-Naimi said after discussions in Vienna yesterday. The group's policy will ensure a crash in the U.S. shale industry, predicted Leonid Fedun, the vice president of Russia's OAO Lukoil.

"We have a situation where OPEC is prepared to live with low oil prices," said Harry Tchilinguirian, BNP Paribas SA's London-based head of commodity markets strategy. "OPEC is forfeiting its role as a swing supplier to balance the market, and is giving back the role to market mechanism."

Brent for January settlement fell $2.43, or 3.3 percent, to $70.15 a barrel on the London-based ICE Futures Europe exchange, the lowest close since May 2010. Prices are down 13 percent this week, the biggest weekly loss since May 2011. Brent has decreased 18 percent this month, the worst performance since October 2008 and is down 37 percent in 2014.

WTI for January delivery declined $7.54, or 10 percent, to $66.15 on the New York Mercantile Exchange, compared with the Nov. 26 close. That's the lowest settlement since September 2009. There was no floor trading yesterday because of the Thanksgiving holiday and transactions from yesterday were booked today for settlement purposes. Prices tumbled 14 percent this week and 18 percent in November.

Bear Market

Crude has collapsed into a bear market amid the fastest pace of U.S. production in three decades, rising output from OPEC and signs of weakening global demand.

"We are going to see continued lower prices," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "Any kind of rally that we do see, I think it will be sold into."

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world's oil supply, produced 30.56 million barrels a day in November, exceeding its 30 million target, according to data compiled by Bloomberg.

OPEC wants a fair price and isn't "sending any signals to anybody," Secretary-General Abdalla El-Badri said. The 12-member group will convene again June 5 in the Austrian capital.

Further Declines

OPEC's decision not to reduce production creates potential for further declines in oil prices, Goldman Sachs Group Inc. said in an e-mailed report. Citing its expectation of a "large market surplus" in the first half of next year, the bank maintained its 2015 Brent forecast at $80 to $85 a barrel and WTI at $70 to $75.

Iranian Oil Minister Bijan Namdar Zanganeh said he's "not angry" about the outcome of the talks in Vienna, even though it was "not in line with what we wanted." OPEC isn't "playing hardball," according to Nigerian Petroleum Minister Diezani Alison-Madueke, who was selected as the group's president for next year.

Conventional oil producers in OPEC can no longer dictate prices, United Arab Emirates Energy Minister Suhail Al-Mazrouei said in an interview on Nov. 26. Newcomers to the market who have the highest costs and created the glut should be the ones to determine the price, he said.

U.S. production expanded to 9.08 million barrels a day through Nov. 21, the highest level in weekly records that started in January 1983, according to the Energy Information Administration. Crude inventories rose to 383 million, said the Energy Department's statistical arm.

Lower Prices

"I think we will now head to $60 per barrel as shale oil and Gulf of Mexico production will continue to come on line in the next six months," said Andy Lipow, president of Lipow Oil Associates LLC, an energy consulting firm in Houston. Gasoline prices will "drop another 30 cents per gallon to $2.50 and some stations in the county will be at $1.99."

Gasoline futures fell 13.12 cents to $1.9039 a gallon on the Nymex, a four-year low. Regular gasoline at the pump averaged $2.792 yesterday, the lowest since October 2010, according to AAA. Ultra low sulfur diesel tumbled 16.57 cents to $2.2308 a gallon.

bloomberg.com