Oil Prices in Freefall as OPEC Fails to Agree Output Cut

Oil prices fell to their lowest level in over five years Thursday as the cartel that produces one third of the world’s output failed to agree on measures to tackle the current glut.

In what had been billed as their most important meeting in decades, ministers from the Organization of Petroleum Exporting Countries agreed to keep their self-imposed output ceiling at 30 million barrels a day, but promised each other they would cheat less on their agreed quotas.

Such promises have rarely held in the past, and the markets reacted by driving the price of the benchmark crude futures contract down nearly 8% to below $69. Oil hasn’t been that cheap since August 2009. Prices have now fallen by over 30% since the summer, and by 13% in November alone.

Thursday’s decision effectively sets the level of OPEC output for the whole of the first half of next year, news agencies quoted Abdalla El-Badri, OPEC’s Secretary-General, as saying. If that’s true, then any reduction in world output will likely be driven by marginal fields in the U.S.

The decision is a victory for Saudi Arabia, which can better afford to play a long game with U.S. producers than its poorer colleagues in OPEC, such as Venezuela and Iran.