NEW YORK (Reuters) – Oil prices fell on Friday after news that OPEC was planning to maintain its production near record highs despite depressed prices, as the producer group continued to seek share of an oversupplied market.
The group, which produces a third of global oil, decided to increase its collective output ceiling to 31.5 million barrels per day (bpd) from the previous 30 million, two OPEC sources told Reuters, in a move that acknowledged that members are already pumping well in excess of the current ceiling.
The agreement to keep output near record highs was largely expected, yet wiped out any remaining hope for bulls that production cuts could push prices higher, sending ripples across wider markets.
Brent crude oil futures fell 91 cents to $42.92 a barrel by 9:45 a.m. EDT (1445 GMT), after rising in early trade, within cents of August's 6-1/2-year trough.
U.S. crude futures dropped over 3 percent, or $1.22, to $39.86.
The production outlook appears to be a victory for Saudi Arabia which has been under pressure from OPEC's poorer members to cut output & assist bolster prices. Saudi Arabia has been content to keep production up, a move which has squeezed producers in the United States struggling to maintain profits in the face of low prices.
Energy company shares, including those of U.S. oil major Exxon Mobil & oil service companies Baker Hughes & Halliburton fell after the OPEC news.
U.S. stock index futures turned lower; the euro pared losses against the dollar. [USD/] [.N]
"The Saudis clearly feel that their strategy is working & remain committed to it, despite the protests of many other OPEC members," said Seth Kleinman, head of energy research at Citigroup.
On the demand side, China is likely to double its strategic crude oil purchases next year to take advantage of a more than a 60 percent fall in oil prices since June 2014.
Beijing will add 70 million-90 million barrels of crude to storage tanks in 2016 to build up its strategic petroleum reserves (SPR), according to most respondents in a poll of five analysts & data collected by Reuters analysts.
(Reporting by Edward McAllister in New York, Amanda Cooper in London; Additional reporting by Swetha Gopinath in Singapore; Editing by William Hardy & Marguerita Choy)