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Global oil prices dropped by 7% immediately after OPEC’s decision on 27 November to hold its production ceiling at 30mn b/d despite a more than 30% slump in the Brent price since mid-June. With forecasts for much lower demand for OPEC’s oil in the first quarter of 2015, the decision to roll over the current ceiling level till the middle of next year was a bearish signal that sent the market into a tailspin. In the end, it was Saudi Arabia’s default position that prevailed.
It took the heads of delegation from the 12 member states — 11 ministers and a deputy premier from Libya — four hours to come up with a decision to maintain the status quo despite efforts by Venezuelan Foreign Minister Rafael Ramirez to orchestrate a production cut of 2mn b/d, equal to the anticipated fall in demand for OPEC’s oil in the first quarter of next year (see graph). Delegates say there was no discussion of numbers during the conference with only a vague proposal presented for a 5% reduction, which would have done little to pacify an oversold market. Standard Chartered Bank immediately cut its Brent forecast for the first three months of 2015 by a whopping $21/B to $68/B, saying it expected a “chaotic” first quarter as a result of OPEC’s decision. Its forecast for the whole of 2015 was lowered by $16 to $89/B despite expectations of a significantly tighter market in the second half, given the low level of the current surplus.
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