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Oil prices fell on Friday after news that the Organization of the Petroleum Exporting Countries (Opec) 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, which produces a third of global oil, decided to increase its collective output ceiling to 31.5 million barrels per day from the previous 30 million bpd, two Opec sources told Reuters, in a move that acknowledged that members are already pumping well in excess of the current ceiling.
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The agreement to keep output near record highs was largely expected, but wiped out any remaining hope for bulls that production cuts could push prices higher, sending ripples across wider markets.
Still, losses were muted as prices reached key support levels around $40 a barrel.
Brent crude oil futures fell 60 cents to $43.24 a barrel by 10:54 am EDT (15:54 GMT), after rising in early trade. Brent was within cents of August's 6-1/2-year trough. US crude futures dropped over 2 per cent, or 96 cents, to $40.12. US crude had dropped below $40 after the Opec news, but failed to stay below that level for long.
The production outlook appears to 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.
"Trading longer-term market share against short-term revenues is a hazardous policy, but once started it needs to be followed through to the end," said Paul Horsnell, head of commodities research at Standard Chartered. "That's the argument that has carried the day in Opec, and the heavy pressure on non-Opec producers, especially US shale, is going to be kept up."
Energy company shares, including those of US 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 over one per cent, helping cap gains in the wider stock market.
On the demand side, China is likely to double its strategic crude oil purchases next year to take advantage of low prices and will add 70 million-90 million barrels in 2016, according to a poll of analysts and data collected by Reuters analysts.
