A day after OPEC made its decision not to cut oil production the prices of oil dropped their lowest levels since 2010 and oil companies took a huge hit in their stock value.
On Friday the West Texas Intermediate fell by 10 percent, down to just $66.15 per barrel, representing the steepest one-day drop in oil prices since the end of the financial crisis.
The stock values of major oil companies across the US plummeted. Chevron was down by more than 5 percent, closing at $108.87. Exxon Mobil Corp. dropped by 4 percent, closing at $90.54.
On Thursday OPEC had a meeting in Vienna to discuss whether to cut oil production and protect oil price or not. However, in a somewhat controversial move, the organization decided not to cut production, mainly as an attempt to drive off US competitors. OPEC decided to maintain production levels of 30 million barrels a day.
According to Bloomberg, OPEC Secretary-General Abdalla El-Badri said after the meeting:
“We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves,”
“We are not sending any signals to anybody. We just try to have a fair price.”
The OPEC has crashed the global oil market before. In the 1980s the organization decided to step up supply at a time when markets were weak, putting many American companies out of business.
However, since the 1980s the market has changed a lot. Bud Weinstein, an economist with the Maguire Energy Institute at Southern Methodist University, told the SF Gate:
“OPEC has become more irrelevant as a price setter,” he said. “Even if they did cut back production 2 or 3 million barrels, it’s not clear it would have the same impact.”