Facing few options to reverse plunging oil prices, OPEC oil ministers decided Thursday to keep their production target on hold, a move that is likely to push the market even lower at a time of already high supply.
Oil prices fell sharply on the news. Even though the decision was largely expected, it showed the once-powerful cartel is losing the power to push up markets to its own advantage.
Some experts said the move was an effort by OPEC to allow prices to fall further — even at the cost of a short-term hit to revenue — to put economic pressure on rival producers in the U.S., which need higher prices to break even. In the long term, that could help reaffirm OPEC's dominance of the oil market.
It would also be good news for consumers and oil-importing nations.
The global price plunged $5 to a four-year low of $72.76 a barrel. As recently as June it was around $115.
Oil ministers had come to Thursday's meeting facing two unpalatable choices: Cut their production from 30 million barrels a day in an effort to boost prices and see OPEC's market share fall, or do nothing in hopes of riding out the crisis.
Cutting production may not have been very effective because supply from non-OPEC countries, like the U.S., remains high. Also, discipline within the 12-member organization is lax and overproduction by some members would have cut into the effectiveness of any production cut.
In any case, OPEC could have not afforded to scale back production by more than 1 million barrels a day — too little to make a sizable dent in supply.
OPEC Secretary General Abdullah Al-Badry suggested all members were on board with the decision to stick to the present output level, telling reporters, "the ministers are happy."
"I see no nagging from consumers, no nagging from producers, so everybody is happy," he told reporters.
In fact, the decision once again appeared to reflect Saudi Arabia's clout over less powerful OPEC rivals.
By opposing an output cut, Saudi Arabia appears to be hoping to drive prices below the level at which shale oil production is economical. Experts say shale oil production turns too costly at the $60 a barrel level.
Accounting for about a third of OPEC output, the Saudis can weather lower prices because their coffers are well-padded and its production costs are relatively low.
But poorer OPEC members like Venezuela and Nigeria need levels close to $100 or above to fund national budgets. Saudi rival Iran is suffering, too, with the price drop adding to huge revenue losses due to sanctions on its crude sales imposed over its nuclear program.
Iranian oil minister Bijan Namdar Zangeneh said the "OPEC decision was not entirely what we wanted," and analysts suggested that others share that view.
"I think you're going to see additional tension between the OPEC ranks," said Jamie Webster, senior director of crude oil markets at IHS consultants.