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Oil slumps to near 7-year low amid Opec discord

Release time:2015-12-22   Care:   BACK
Oil slumped to its lowest level since the financial crisis as traders reacted to a rancorous Opec meeting last week that exposed the organisation’s inability to tackle a global glut.
The seven-hour meeting ended in chaotic scenes on Friday evening and highlighted the growing discord between Saudi Arabia and Iran, two of Opec’s most powerful members, as Tehran prepares its return to international markets next year when sanctions are lifted.
As oil traders delivered their verdict yesterday, Brent, the global benchmark, dropped 5 per cent towards $40 a barrel, its lowest level in almost seven years. US marker West Texas Intermediate fell 5 per cent to $37.84.
“The latest Opec meeting yielded no change and no words about how the cartel is going to deal with the additional supply from Iran next year,” said Ole Hansen, head of commodities strategy at Saxo Bank. “With no signs of non-Opec producers such as the US and Russia cutting back, at least not voluntarily, the near-term outlook for oil remains very challenging indeed.”
Shares in the biggest oil groups tumbled as investors factored in the hit to revenues from what one analyst called “a lower for even longer” price slump.
In London, Royal Dutch Shell fell 4.1 per cent, while BP declined 3.4 per cent. US majors ExxonMobil and Chevron dropped 2.9 per cent and 3.2 per cent respectively.
Friday’s meeting in Vienna ended with the 13-member group abandoning even the pretence of an output target for the first time in years, leaving all members free to open the taps as they fight for customers.
Saudi Arabia and Iran resisted calls for production restraint and vowed to keep pumping, intensifying a battle for market share that has contributed to record oil inventories and a halving of the oil price over the past 18 months.
The two countries back opposing sides in bloody conflicts in Syria and Yemen, while Saudi Arabia initially opposed the deal concluded in July to curb Iran’s nuclear programme.
As Opec loosens its grip on the market, traders are continuing to increase their bets on lower prices, according to the latest exchange and regulatory data. Hedge funds are holding near-record “short” derivative positions equivalent to almost 360m barrels of crude that will benefit if prices fall.
The bets come as many analysts see the oil glut extending well into 2016, as Opec members try to undermine
higher-cost rivals. “While it is taking longer than expected and prices are falling more than Opec may have hoped, the group is going to continue its policy of seeking market share and letting the oil price sort out the winners and losers,” said Ann-Louise Hittle at Wood Mackenzie, a consultancy. 
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