OPEC: Oil prices slide as ministers fail to agree on output

Brent crude slid back below $50 as members of the Oil Producing and Exporting Countries (OPEC) failed to agree on output levels at their meeting, although the need to draw inventories down from levels above the five-year average was acknowledged.

There were suggestions that the talks would seek some agreement on an output ceiling, but this looked unlikely as Iran, having just emerged from the yoke of international sanctions, was keen to boost production to generate much needed revenue and therefore would not agree to any cap.

Brent crude hit $48.99, while West Texas Intermediate fell 1.8% to $48.19.

The cartel said crude oil production was 1m barrels a day (b/d) lower than its peak at the beginning of 2015 with global demand anticipated to expand by 1.2m b/d after growing at 1.5m b/d during 2015.

"This demand growth remains relatively healthy considering recent economic challenges and developments," it said in its closing statement.

"The conference observed that, since its last meeting in December 2015, crude oil prices have risen by more than 80%, supply and demand is converging and oil and product stock levels in the OECD have recently shown relative moderation," OPEC said.

"This is testament to the fact that the market is moving through the balancing process. The latest numbers, however, still show OECD and non-OECD inventories standing well above the five-year average and these need to be drawn down to normal levels."

"The conference also noted the very low investment level currently prevailing in the oil industry and emphasized the need to increase upstream investment in order to achieve long-term balance in the oil markets."

Member countries also confirmed their commitment to a "stable and balanced oil market, with prices at levels that are suitable for both producers and consumers", OPEC added.

Saudi Arabia's new energy minister, Khaled al-Falih earlier said the market was "rebalancing as we speak".

"Demand is extremely healthy and robust. Non-Opec supply is declining. Prices will respond to the rebalancing of the market," he said at the start of the meeting.

Mohammed Bin Saleh Al-Sada, Qatar's Minister of Energy and Industry and president of the OPEC conference told delegates at the start of the meeting that world demand remained “healthy” and the market now appeared to be rebalancing as the lower oil price led to a scaling back of producion and exploration.

“From the supply perspective, in the first half of this year, we have seen a further downward revision to the 2016 outlook for non-OPEC supply. We now anticipate a contraction of 740,000 barrels per day this year. This is more than 2m barrels per day lower than the growth of 2015,” he said.

“This trend stems mainly from reduced cashflows, investment cutbacks and the deferral or cancellation of projects.”

“It is evident that these developments point to a more balanced market in the second half of this year, with demand for OPEC crude averaging around 32.5m barrels per day during this period. The overall demand increase year-on-year for OPEC crude is around 1.8m per day.”

“However, we do need to appreciate that stock levels remain high. The five-year average for OECD commercial stocks is currently at a surplus of around 360m barrels. It is important that we take note of this figure on a downward trend. A more stable and balanced market will be beneficial to all.”

Al Sada said global exploration and production spending fell by around 20% last year, and a further 15% drop was anticipated this year.

“This is a major concern for an industry that generally sees investments increasing year on year to sustain production. It is important to keep in mind the link between the marginal cost of production, the oil price and investments,” he added.