Oil prices plunged today as traders started having second thoughts about the impact the Organization of Petroleum Exporting Countries’ (OPEC) decision not to raise production may have on oil demand.
The OPEC met in Vienna on Wednesday and, contrary to expectations, refrained from hiking output even though the organization’s most influential member Saudi Arabia was in favour of producing more oil to meet the growing demand.
Yet other oil exporters, primarily Iran, refused to back down and no agreement was reached, leaving the quotas unchanged.
However, it has emerged that Saudi Arabia decided to raise oil production anyway, fearing that oil demand will plunge as a result of the negative impact of supply shortages in the market on the economy.
Earlier this week, the World Bank stated that high oil prices posed a serious risk to the ongoing economic recovery. WB projects global economic growth to slow from 3.8 percent in 2010 to 3.2 percent this year before rising to 3.6 percent in 2012.
US light, sweet crude for July delivery, which is currently the most actively traded contract on the New York Mercantile Exchange (NYMEX), slipped to US$99.27/barrel, while August crude pulled back to US$99.80/barrel.
July Brent crude last traded at US$118.18/barrel on the ICE Exchange.
Major energy companies were broadly flat today. BP (LON:BP) and Royal Dutch Shell (LON:RDSB) posted small gains, as did services company Wood Group (LON:WG).
Midcap Heritage Oil (LON:HOIL) fell 1.2 percent.
Energy sector focused investor Xtract Energy (LON:XTR) and US focused Nighthawk Energy (LON:HAWK) were among the top performing small caps, advancing 8.5 percent and 8 percent respectively. Nostra Terra Oil & Gas (LON:NTOG) rose 5.5 percent.