Brent crude oil plunged as much as $6.50 a barrel on Thursday and US crude dropped by nearly as much, posting their steepest one-day falls since 2011, after Opec decided against cutting output despite a huge oversupply in world markets.
Asked whether the oil producer group had decided not to reduce production, Saudi Arabian Oil Minister Ali al-Naimi said: “That is right.”
Oil prices have fallen by more than a third since June as increasing production in North America from shale oil has overwhelmed demand at a time of sluggish global economic growth.
Ministers from the Organisation of the Petroleum Exporting Countries had been discussing at their meeting in Vienna whether to agree a production cut in an attempt to rebalance the global oil market.
Crude prices have been falling all week as traders and analysts scaled back expectations of an Opec production cut, but the sharp dive after Thursday’s meeting showed the decision was not fully priced in.
Benchmark Brent futures were down by $5.20 a barrel at $72.55 , after hitting a four-year low of $71.25 earlier in the session. The contract was on track for its biggest monthly fall since 2008.
US crude was at $69.01, down $4.68.
At its lowest point on Thursday, it traded at $67.75, or nearly $6.00 down on the day, its weakest since May 2010.
The cartel, whose largest producer and exporter is Saudi Arabia, will meet again in June next year, said an Opec delegate.
Tariq Zahir, analyst at Tyche Capital Advisors in New York, said and the slide in US crude could continue below $65 a barrel in coming weeks, a factor that may start to challenge the economics of North American shale oil production.
“I really think we will start getting into a price war,” Mr Zahir said. “I think you would be a little crazy to try to pick a bottom here. I expect to see a bounce but any bounce will be sold into.”
He added trading volumes were reasonably strong on Thursday despite many US traders being off for the Thanksgiving holiday.
Oil analysts said the Opec decision left the oil market vulnerable to much bigger falls as abundant supply of high quality, light crude oil floods world markets, much of it from shale oil in North America.
“Saudi Arabia and Opec will have to live with a prolonged period of low prices for any dent in US shale or production levels to happen,” said Harry Tchilinguirian, senior strategist at BNP Paribas in London.
- Reuters
