Reflecting its lessening oil clout, OPEC decided today to keep its output target on hold and sit out falling crude prices that will likely spiral even lower as a result.
Oil prices fell sharply on the news. Even though the decision was largely expected, it showed the once-powerful cartel is losing the power to push up markets to its own advantage.
The move to maintain a production target of 30 million barrels a day appeared to reflect acceptance of the Saudi view within OPEC that short-term pain had to be accepted for later gain.
The Saudis and their Gulf allies hope to put economic pressure on rival producers in the US, which need higher prices to break even. In the long term, that could help reaffirm OPEC's dominance of the oil market.
It would also be good news for consumers and oil-importing nations.
The global price plunged USD 5 to a four-year low of USD 72.76 a barrel. As recently as June it was around USD 115.
Oil ministers had come to today's meeting facing two unpalatable choices: Cut their production from 30 million barrels a day in an effort to boost prices and see OPEC's market share fall, or do nothing in hopes of riding out the crisis.
Paring output may not have been very effective because supply from non-OPEC countries, like the US, remains high. Also, discipline within the 12-member organization is lax and overproduction by some members would have cut into the effectiveness of any production cut.
In any case, OPEC could have not afforded to scale back production by more than 1 million barrels a day too little to make a sizable dent in supply.
OPEC Secretary General Abdullah Al-Badry suggested all members were on board with the decision to stick to the present output level, telling reporters "the ministers are happy."
"I see no nagging from consumers, no nagging from producers," he told reporters.
In fact, the decision once again appeared to reflect Saudi Arabia's clout over less powerful OPEC rivals.
By opposing an output cut, Saudi Arabia appears to be hoping to drive prices below the level at which shale oil production is economical. Experts say shale oil production turns too costly at the USD 60 a barrel level.
