Crude oil futures slumped to their lowest point in nearly
seven years in December following a meeting held by the
Organization of the Petroleum Exporting Countries (OPEC), which
failed to address production rates in an oversupplied
Crude prices fell to $38.49 a barrel on the West Texas
Intermediate and below $40 a barrel on the Brent benchmark
after OPEC failed to mention a formal production ceiling, which
was previously set at 30m barrels a day (bbl/d).
Persistently low oil prices have caused a reduction in the
US shale oil sector, with drillers cutting spending and
"This downward trend should accelerate in H2 2015 and H1
2016 given various factors, including stable low oil prices,
coupled with a more cautious approach by equity investors who
will limit the availability of cash to allow producers to
sustain operations," OPEC’s November oil report
"Hence, the number of newly-drilled wells is decreasing and
the number of active drilling rigs has declined by around
half," it added.
According to the US Energy Information Administration (EIA),
crude oil production by OPEC is an important factor that
affects oil prices owing to production targets set for member
"Historically, crude oil prices have seen increases in times
when OPEC production targets are reduced," the EIA
However, while some OPEC members have pushed for production
cuts that might push oil prices up, OPEC’s
president and Nigeria’s petroleum minister,
Emmanuel Ibe Kachikwu, said following the meeting that a 5%
reduction would be unlikely to improve prices unless non-OPEC
producers also joined in production cuts.
When questioned about the 30m bbl/d ceiling at a news
conference following the meeting, Kachikwu said OPEC would
continue at the "current production level".
Oil prices to stay lower
Following the organisation’s decision to forego
its formal production ceiling, Reuters reported that
investors are predicting that the oil price will stay lower for
longer, with US crude futures for delivery nearly 10 years away
"Oil is going to make lower lows and lower highs for the
foreseeable future and, in terms of market reaction post-OPEC,
I’m not surprised but it does leave the door open
for prices to fall," Gain Capital analyst, Fawad Razaqzada,
told the news service.
With OPEC refusing to budge on production in order to
maintain market share, prices for North American shale oil and
gas producers are also likely to remain low.
Among the materials used in the extraction of oil and
natural gas using the hydraulic fracturing (fracking) and
drilling processes are industrial minerals such as barite,
bentonite, silica (frac) sand, kaolin and bauxite.
The reduction in capex in the US oil and gas industry has
severely impacted demand for oilfield minerals in the last
year. While an increase in the number of fracking stages and
the re-fracking of old wells has offered some respite, until
oil prices lift, demand is unlikely to see a substantial