OPEC decided not to cut oil production on Thursday, sending benchmark crude to a new four-year low.
Poorer members of the OPEC group called for production cuts, however, Saudi Arabia blocked these calls.
After OPEC ministers left their meeting in Vienna brent oil dropped by over $6 to $71.25 a barrel.
Even though there is a huge oversupply of oil, the OPEC made a somewhat controversial decision to not defend plunging prices and keep production up.
The outcome of the decision will create a battle between OPEC and non-OPEC countries for oil market share.
Saudi Oil Minister Ali al-Naimi said that “It was a great decision,”
According to an OPEC statement, members agreed to maintain the production level of 30.0 mb/d, as was agreed in December 2011.
“Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing.”
The wealthiest OPEC members said that they are capable of riding out weak prices. But weak prices have affected Venezuela and Iran, as they face big budget pressures.
Venezuelan Foreign Minister Rafael Ramirez said that he finally accepted the decision and hopes that as oil prices go down it will help drive some U.S. shale oil production out of the market.
“In the market, some producers are too expensive,” he said.
OPEC members account for around a third of global oil production.
Because of large foreign-currency reserves, most gulf producers can withstand the market share battle which will send prices to go down further. However, members without this cushion are going to find it much more difficult, in addition to countries outside the group.
Russia, which is already being affected by Western sanctions, needs oil to be at around $100 per barrel to balance its budget.
If a price war sparks then future U.S. shale oil projects will become uncompetitive because of their high production costs, which would help OPEC in the long term.
Essentially the OPEC made the decision not to cut production, and ride lower prices, as a means of slowing down development projects in the US.