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Oil prices plunge after Opec decision not to cut production

Oil prices plunge after Opec decision not to cut production

The price of oil slumped further after Opec decided not to cut output at its meeting in Vienna, Austria, on Thursday.

Opec Secretary General Abdallah Salem el-Badri said that they would not try to shore up prices by cutting production – as some members would have wanted.

"There's a price decline. That does not mean that we should really rush and do something," he said.

Following the announcement Brent crude hit its lowest since August 2010, falling below US$72 a barrel, before settling at US$72.82 - a 5% drop on the day.

The US benchmark dropped US$4.64 to US$69.05 a barrel. However, market business was slowed midday by diminishing Thanksgiving holiday business.

Maintaining  production levels

The 12 Opec members decided to maintain production at 30 million barrels per day as first agreed in December 2011.

"We don't want to panic. I mean it," said el-Badri.

"We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change."

Calls to cut back on production

Falling oil prices have become a major concern for several members Opec members - in particular Saudi Arabia, as most require a price above US$80 a barrel to balance their government budgets - and many need prices to be above US$100 a barrel.

The decision not to cut production and keep prices falling is also expected to hurt the economies of other oil producers such as Russia, Iran, and Venezuela.

The Shale factor

Some analysts have suggested that the strategy of maintaining output may be aimed at retaining dominance on the market in the face of increasing shale oil production in the United States – the world’s biggest consumer of Middle East oil.

Shale has been one of the drivers behind the decline in the oil price; as the oil price dips, shale becomes less economical to produce.

If oil prices are allowed to remain low for some time, shale production over the longer term would be shelved - so keeping oil prices low makes sense for Opec.

Opec accounts for a third of the world's oil sales.

In South Africa

Meanwhile in South Africa, the Central Energy Fund is expected to announce the December petrol prices today, Friday, 28 November.

Photo caption: OPEC Secretary General Abdalla Salem El-Badri attends at press conference after the166th Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria.