Saudi Arabia’s cabinet “expressed satisfaction” at the Organization of Petroleum Exporting Countries’ decision not to cut oil production to buoy prices, a move that’s sent crude into a free fall and made investors skittish.
Much like the reasoning OPEC gave Thursday, the Saudi cabinet said that international markets would eventually stabilize, according to translation from the state-run Saudi Press Agency. Saudi Arabia, the world’s top oil producer,accounts for a bulk of OPEC production and fought off other nations of the oil cartel at the Thursday meeting that wanted to cut production to boost prices.
The markets were skeptical, though many analysts predicted the OPEC oil cartel would hold another meeting in June to reassess. Following the announcement, the international benchmark Brent crude dipped below $70 per barrel for the first time in four years. It opened trading Monday at $70.15 per barrel for delivery in January, while the United States index West Texas Intermediate opened at $66.15.
Plummeting prices could have repercussions for some U.S. producers. Many drillers are seeing strain on their bottom lines because tight-oil drilling, such as in the shale plays that have spurred a domestic energy boom, are more costly than the conventional wells that predominate OPEC countries.
The effect on energy firms could go farther than drilling, warned Morgan Stanley. Lower prices could lead to shocks later, which could incite anger from consumers. And many firms are still in the process of planning budgets for next year, and subdued prices — which is a reflection, at least in part, of sapped global demand — could tame ambition.
“2015 capital budgets are still in the process of formation, and [capital expenditure] is likely to be cut further from both US and global players. High-cost international projects could face more pressure,” it said.
