U.S. Crude Falls After OPEC Said to Roll Over Policy
Oil prices fell on Friday after news that the Organization of Petroleum Exporting Countries was planning to maintain its production near record highs despite depressed prices, as the producer group continued to guard its share of an oversupplied market.
The group failed to agree on a new production quota, allowing member countries to continue pumping over 31 million barrels per day of oil into a glutted global market, volumes that have already helped keep oil prices depressed for over a year.
Friday's announcement sent ripples through wider markets and dented shares of U.S. energy drillers already suffering from low prices, but losses in oil futures were limited as prices hit key support levels around $40 a barrel.
Brent crude oil futures fell 84 cents, or nearly 2 percent, to settle at $43, after rising in early trade. The benchmark was within cents of August's 6-1/2-year trough.
U.S. crude futures fell $1.11, or nearly 2 percent, to settle at $39.97.
"There was some short covering before the announcement in case there was a production cut. When we found out that wasn't the case, we gave up the gains," said Gene McGillian, analyst at Tradition Energy in New York. "It shifted the market back to fears of oversupply."
Maintaining production would be a victory for Saudi Arabia which has been under pressure from OPEC's poorer members to cut output to bolster prices. Oil has dropped from over $100 a barrel since June 2014 as a global glut weighs on prices.
Saudi Arabia has been content to keep production up, a move which has squeezed non-OPEC producers, including the United States, that have struggled to maintain profits in the face of low prices.
"The heavy pressure on non-OPEC producers, especially U.S. shale, is going to be kept up," said Paul Horsnell, head of commodities research at Standard Chartered.
Energy company shares, including those of U.S. oil major Exxon Mobil Corp and oil service companies Baker Hughes Inc and Halliburton Co fell after the OPEC news. The S&P Energy index fell on Friday, helping cap gains in the wider stock market.
U.S. energy firms this week cut oil rigs for the 13th week in the last 14, data from Baker Hughes showed on Friday, down 10 to 545, the lowest since June 2010.
The pain could continue. Goldman Sachs analysts, which expect OPEC production to remain slightl above current output at 31.8 million barrels per day in 2016, said on Friday that the supply overhang and low prices could continue until the fourth quarter of next year, in part due to robust supply.