No production cut agreement sinks prices further.
LONDON – Crude oil hit a four-year low yesterday as OPEC failed to come to an agreement over whether production cuts should be made in a bid to curb the current global crude oil oversupply, which could see investors taking the view that it is an attractive entry point to oil.
The outcome of the meeting, which was held in Vienna, saw the price of January Brent futures (considered the international benchmark) drop to $71.25 a barrel, which is the cheapest price since mid-2010. In the U.S. – on Thanksgiving, which is a typically subdued trading day for oil – the WTI (West Texas Intermediate) price was down $4.75 to $68.94, which was also a four-year low.
OPEC countries refrained from cutting production yesterday because non-members like Russia and Mexico made it clear that they will not reciprocate meaning that OPEC countries could simply lose market share.
Nitesh Shah, associate director – research analyst at ETF Securities, said: “Although OPEC resisted calls to cut production yesterday, we believe the cartel will eventually have to reduce supply to help stabilise global oil prices. The cartel jointly produces approximately 40 percent of global oil output.”
Flows into crude oil exchange traded products soared in the run up to the OPEC meeting as investors anticipated a cut in oil production. Between the 20th and 27th October investors put $12.4 million into long Brent ETPs and $13.3 million into long WTI oil ETPs, according to ETF Securities.
Shah added: “Some investors will view today’s oil price as an attractive entry point in anticipation of tightening supplies in 2015 and will accumulate long positions in oil ETPs. Other investors may pare their holdings in response to yesterday’s inaction if they have a shorter investment horizon.”
The drop in the Brent price has also meant the price per barrel has fallen nearly 40 percent since June on the back of the OPEC outcome and the booming shale production in the U.S.