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Oil tumbles below $70 as OPEC holds fire despite price collapse

OPEC, the oil cartel responsible for 30 percent of global oil production, will not cut output in spite of the supply glut, a decision that will put more downward pressure on already tumbling prices.

OPEC’s production ceiling will remain unchanged at 30-million barrels a day, OPEC ministers announced Thursday. OPEC’s secretary general, Abdalla Salem El-Badri, said the quota will remain in place for the first six months of 2015. OPEC next meets in Vienna on June 5.

He said OPEC has no target price and that the member countries are not worried about the near 35-percent price plunge since June. “We are not sending any signal to anybody,” he told reporters after the meeting. “We have to wait and see how the market will settle. I have said many times to you we don’t want to panic and we meant it.”

Before the conclusion of the meeting at 4 p.m. European time, the oil markets were selling off rapidly as investors took the view that OPEC would be unable to muster support for a production cut to support sagging prices. Brent crude, the effective international benchmark, fell 3.3 percent on Thursday, taking the price to just above $75 (U.S.) a barrel. In June, the price was $110.

In light Thanksgiving trading in the U.S., the benchmark North American crude, West Texas Intermediate, fell below the $70 a barrel mark.

The Canadian dollar, at a high point just shy of 90 cents U.S. earlier today, slipped to 88.15 cents.

The TSX energy group tumbled more than 6 percent, led by a steep selloff of major oil sands producers.

Suncor Energy Inc. fell 6.2 percent, Canadian Natural Resources Ltd. was down about 7 percent and Cenovus Energy Inc. was off about 5 percent.

Talisman Energy Inc., which has struggled to sell assets amid oil’s slide, fell roughly 5.3 percent, and Penn West Petroleum Ltd. was down nearly 14 percent. Encana Corp., which has spent billions on oil properties, was down about 5 percent.

The decision to keep OPEC’s 30-million barrel a day production target intact did not please all OPEC member states. Venezuela had planned to push for a production cut as it watches is foreign currency reserves fall away. As the oil ministers met, Venezuelan oil minister Rafael Ramirez said, “Everyone has to make some sacrifice.

A month ago, Mr. Ramirez said that $100 US a barrel was a fair price.

A price that high seems unreachable in the near term, in good part because non-OPEC oil supplies are soaring, thanks in good part to America shale oil output. In the United States, shale oil production is rising every six months b about 500,000 barrels a day.

OPEC said that oil demand will actually rise next year, in spite of slowing growth in China and almost not growth in Europe, by 1.1-milion barrels a day to 92.3-million barrels. But supply is increasing at a faster pace, with non-OPEC supply expected to increase by 1.4-million barrels a day in 2015, to 57.3-million barrels a day.

“The market is oversupplied,” said United Arab Emirates Energy Minister Suhail Al-Mazrouei. “But the oversupply is not from OPEC.”

Analysts said the surging non-OPEC supply signals that OPEC is losing control of the market.

“The balance of power has shifted and OPEC is accepting the fact that its ability to control the long-term price of oil is limited,” said Michael Hewson, a market analyst at London’s CMC Markets, said just before OPEC’s production quota was confirmed.

As crude prices have fallen, pump prices followed suit and are now the lowest in four years. On the Prairies, regular gasoline is already selling below $1 a litre at many stations, while they have hit $1.07 in areas of Toronto, according to gasbuddy.com, an online survey site.

Gasbuddy.com analyst Dan McTeague said if crude prices fall below $70 (U.S.) a barrel as many analysts expect as a result of the OPEC decision, pump prices will dip below $1 in many Canadian cities.

As a significant oil producer, the Canadian economy will be hurt by the lower prices, but the pain will be felt primarily in Western Canada and Newfoundland and Labrador, while consuming provinces may welcome the lower pump prices and manufacturers will benefit from a devalued loonie.

However, the federal government is warning its revenues will decline by as much as $2.5-billion a year in the coming years if oil prices remain at depressed levels.

The impact “depends on how long (the lower prices) are sustained,” said Paul Ashworth, economist with Capital Economics in Toronto. OPEC “hasn’t cracked at the moment but there is the possibility that at some point in the future, if prices remain low, they will crack.”

Ashworth said most existing production in Canada will be maintained – and will even be profitable – below $70 a barrel, but new investment in oil sands projects will be undermined.

“It does present a downside risk to marginal projects that we could have seen in the future,” he said. The highest cost projects aren’t going to get the go-ahead if these prices are maintained.”

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