Oil fell to the lowest level in more than six years amid speculation that a record global glut will be prolonged after OPEC effectively abandoned its longtime strategy of limiting output to control prices.
The Organization of Petroleum Exporting Countries will keep pumping about 31.5 million barrels a day, President Emmanuel Ibe Kachikwu said Friday after a meeting in Vienna. The group is setting aside its output quota of 30 million barrels a day, a target it’s breached the past 18 months, until members gather again in June. Declines accelerated as the dollar rose as a strengthening U.S. economy bolstered the case for the Federal Reserve to raise interest rates.
Oil has slumped more than 40 percent since Saudi Arabia led OPEC’s decision in November 2014 to maintain output and defend market share against higher-cost U.S. shale producers. Global stockpiles have expanded to almost 3 billion barrels as the Saudis, Russia and Iraq increased supply, according to the International Energy Agency.
West Texas Intermediate for January delivery sank $2.39, or 6 percent, to $37.58 a barrel at 1:04 p.m. on the New York Mercantile Exchange. Futures touched $37.57, the lowest since February 2009. The volume of all futures traded was 58 percent above the 100-day average.
“The OPEC meeting reinforces that the market needs to rebalance itself and it ain’t going to happen quickly,” Mike Wittner, head of oil-market research in New York at Societe Generale AG.
Most of the market “doesn’t have any ceiling,” Iraqi Oil Minister Adel Abdul Mahdi told reporters in Vienna on Friday. “Americans don’t have any ceiling. Russians don’t have any ceiling. Why should OPEC have a ceiling?”
After Friday’s decision, “everyone does whatever they want,” according to Iranian Oil Minister Bijan Namdar Zanganeh, who estimated the global surplus at as much as 2 million barrels a day. The Persian Gulf nation is seeking to boost crude exports next year when international sanctions over its nuclear program are removed.
Inventories have climbed as production has outpaced demand. U.S. crude supplies rose to 489.4 million in the week ended Nov. 27, the highest level for this time of year since 1930, Energy Information Administration data showed Dec. 2.
“We’re in the midst of the worst,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “I think we’ll be looking at a very different market in the next few months. Once there’s more evidence that production is falling prices will start to recover.”
The eastern half of the U.S. is projected to be warmer than normal during the next two weeks, including the Northeast where heating oil is typically burned to keep people warm, according to the U.S. Climate Prediction Center in College Park, Maryland.
Diesel futures for January delivery fell 4.7 percent to $1.2799 a gallon in New York after touching $1.2783, the lowest since April 2009. January gasoline dropped 4.5 percent to $1.2127 a gallon.