Oil wilts as OPEC stands by Saudi decision not to cut production

The oil ministers of the Organization of Petroleum Exporting (OPEC) countries at their meeting in Vienna on Thursday decided to keep their total oil production unchanged at 30 million barrels per day.

OPEC decided to keep oil flow unchecked despite the increasing flows from US shale oil production even as the price of oil fell further, with the price of Brent crude oil hitting a low of $72.2 per barrel.

The price of OPEC basket of twelve crudes stood at $70.80 dollars a barrel on Thursday, compared with $73.70 the previous day, according to OPEC Secretariat calculations.

Saudi Arabia, the biggest oil producer and supplier in the grouping, wants to keep oil flowing despite falling prices, so that extraction of US shale oil and gas becomes costlier and  and stops being a competitive threat to crude oil.

Shale oil is expensive to produce and is viable only if oil continues to sell at a certain price. However, many shale oil companies would continue to remain viable for an oil price of anywhere between $40 to $60 a barrel.

Daily oil production in the United States, which had fallen to around 4 million barrels per day in 2008, has since jumped up again to around 9 million barrels per day, the kind of level not since the mid 1980s. This has happened primarily because of rising prices of crude in the international market than a boom in shale oil production in the United States.

This is one million barrels per day more than OPEC's own estimate of the demand for its oil in 2015.

"It was a great decision," said Saudi oil minister Ali al-Naimi, after talks which lasted for around five hours, during which OPEC members like Iran and Venezuela demanded  production cuts.

While Saudi Arabia, the largest producer of oil within OPEC, has the resources to withstand the effects an oil price fall, countries like Iran and Venezuela cannot allow the money earned from selling oil to fall as it is the main source of revenue for them.

Saudi Arabia, besides being the largest producer within OPEC, also has the almost unquestioned support of the GCC states of Bahrain, Kuwait, the United Arab Emirates, and Qatar.

This leaves little space for the other member countries of OPEC to disagree.

However, the Saudi strategy doesn't seem to have had the necessary impact on the production of oil by shale oil firms in the United States, where seven largest shale oil players are projected to exceed November production by 125,000 barrels per day in December.