LONDON (Reuters) - Oil hit four-year lows around $70 a barrel on Thursday and commodity currencies were sent tumbling, as OPEC resisted the temptation to cut back production following the more than 30 percent plunge in prices since June.
Asked whether the oil producer group, which provides around a third of world supply, had decided not to reduce production, Saudi Arabian Oil Minister Ali al-Naimi told reporters: “That is right.”
The meeting had lasted over five hours and as the decision emerged both Brent and U.S. crude prices were sent sliding as traders saw it as sign that OPEC members were effectively now in price war with each other.
Brent dropped to $71.58 and U.S. crude sank to $68.20 a barrel as both headed for $5 drops on the day, their biggest falls since May 2011. [O/R]
“Oil prices are now completely in the hands of the market,” Dominic Chirichella, director of New York-based Energy Management Institute, told Reuters Global Oil Forum.
Europe’s stock markets extended their gains on the day to 0.25 percent as the prospect of cheaper energy costs for both firms and strapped consumers added to Wednesday’s signals from the European Central Bank that it is edging closer to government bond buying.
The case for ECB action had been underlined earlier as Spain and Germany both reported weaker-than-expected inflation figures. It points to another decline in the overall euro zone reading when it is published on Friday.
Lending to euro zone households and companies also fell again.
Speaking in Finland, ECB head Mario Draghi said the euro zone needs a “comprehensive strategy” including reforms by governments to get it back on track. Last week, Draghi in effect backed U.S.-style quantitative easing.
The comments and the data lowered the euro to $1.2463 and triggered a new set of record-low bond yields for the euro zone’s biggest economies, with France’s 10-year yields dropping below 1 percent for the first time.
Most market action, however, centered on the slide in oil.
Oil-rich Norway’s crown hit a three-week trough of 8.6530 crowns per euro, Russia’s rouble took another dive and Nigeria’s naira continued to fall despite an 8 percent devaluation on Tuesday.
The huge slump in oil prices since June had made OPEC’s meeting its most closely watched in decades. One member of the cartel told Reuters it will next meet in June.
Besides pushing down inflation in Europe, already close to deflation, the fall in prices is also hurting the economies, currencies and financial markets of many producer countries.
Ehsan Ul-Haq, a senior oil market consultant at KBC Energy Economics, in Vienna for the OPEC meeting, said he expected oil prices to now stay under $80 a barrel for the foreseeable future with a chance they could go below $70.
While the plunge in prices is bad for oil producing countries, it is generally viewed as a positive for global growth as it makes energy cheaper giving consumers more money to spend and reducing costs for firms.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent. Shanghai shares hit a three-year high, extending a rally that began after China cut interest rates last week. They are up 8.2 percent so far this month.
“The rate cut clearly showed the Chinese authorities are very much keen to support the economy. So even though Chinese economic data has been pretty weak, investors are convinced that there will be no hard landing,” said Naoki Tashiro, the president of TS China Research.
Japan’s Nikkei shed 0.8 percent as the yen recovered some ground against the dollar. The index has gained 5.1 percent so far this month, becoming the second-best performing market in the region after China.
Though trading was lighter than usual due to the Thanksgiving holiday in the United States, the dollar crept up as it fetched 117.54 yen, off last week’s seven-year high of 118.98 yen, but still up more broadly.
It also saw gold, which is priced in dollars, dip for a second session as it held below $1,200 an ounce.
Outflows resumed from the top bullion exchange-traded fund, while a referendum in Switzerland on Sunday also kept the market cautious: a “yes” vote would force the Swiss central bank to buy about 1,500 tonnes of gold in coming years, analysts said.
Addtional reporting by Hideyuki Sano in Tokyo; Editing by Andrew Roche