Oil prices, stock plummet day after OPEC meeting

A day after OPEC opted not to cut oil production despite a weakening global market, prices plummeted to their lowest level since 2010.

The price of West Texas Intermediate, the U.S. benchmark, fell more than 10 percent Friday, trading at $66.15 a barrel and heightening predictions that the U.S. oil boom will slow substantially next year.

Oil companies across the board watched their stock values decline on a slow trading day on Wall Street. Irving-based Pioneer Natural Resources’ shares were down 11 percent to close at $143. Exxon Mobil shares were down 4 percent at $91.

“It’s one of the steepest one-day drops in oil prices since the end of the financial crisis. And today we’re seeing the corresponding view in the stock market,” said Pavel Molchanov, an energy analyst with Raymond James.

In Vienna Thursday, the Organization of Petroleum Exporting Countries voted to maintain production of 30 million barrels a day, about four times that of the United States. The news came as a shock to markets following predictions that governments in Saudi Arabia and Iran, which are heavily dependent on oil for public spending, would maneuver to try to raise the price of oil.

“We will produce 30 million barrels a day for the next six months, and we will watch to see how the market behaves,” OPEC Secretary-General Abdalla El-Badri told reporters in Vienna after the meeting, according to Bloomberg News. “We are not sending any signals to anybody. We just try to have a fair price.”

The fallout from OPEC’s decision is likely to mean more bad news for oil companies operating in the United States. Shale plays like the Eagle Ford in Texas and Bakken in North Dakota, which have boomed in recent years, are dependent on cost-intensive drilling techniques that analysts say are already uneconomic for some companies at current prices.

A report by Moody’s Investors Service earlier this week projected that capital spending by oil producers will decline 20 percent next year with “room for deeper cuts if weak oil prices persist.”

The OPEC decision quickly spawned unease as the realization that a decline that has pulled down oil prices more than 35 percent since July was unlikely to abate soon.

“It’s a direct attack on the U.S. shale boom. They look at us now as a threat,” Chris Faulkner, CEO of Breitling Energy, said of OPEC. “It’s going to be small independent companies that get hurt, the ones that didn’t hedge and are operating in very expensive areas.”

The question of when oil prices might rebound has divided analysts. Many had projected low prices would curb U.S. production next year, propping up prices and preventing a more severe downtown in the energy sector. But some are warning now that larger economic malaise in Japan and Europe is likely to pull oil demand down even further next year.

“It’s a period of great uncertainty. We’ll have to see how it all plays out in the next few weeks,” said Terry Marshall, senior vice president at Moody’s.

Thursday’s events seemed to support the theory that OPEC is abandoning its traditional role as swing producer. In the past, the oil cartel could induce oil prices to rise and fall by adjusting its production a percentage point or two.

In the 1980s, OPEC crashed the global oil market by increasing supply at a time the markets were already weak, putting many U.S. producers out of business. Some have speculated that same intent was behind Thursday’s decision, a response to a U.S. boom that has increased production more than 50 percent since 2011.

But the dynamics of the global oil market have changed dramatically since the 1980s, said Bud Weinstein, an economist with SMU’s Maguire Energy Institute.

“OPEC has become more irrelevant as a price setter,” he said. “Even if they did cut back production 2 [million] or 3 million barrels, it’s not clear it would have the same impact.”

Follow James Osborne on Twitter at @osborneja.