(EnergAsia, December 1 2014, Monday) — Oil prices are hovering at a five-year low after OPEC announced the retention of its current production ceiling of 30 million b/d through to its next meeting in 2015.

Following the end of the cartel’s bi-annual meeting in Vienna last week, US WTI crude futures settled at US$66.15 a barrel for its lowest close since September 2009 while North Sea Brent briefly went below US$70 before settling at US$70.45, its lowest since July 2010.

Oil prices have fallen by more than a third since mid-2014 as a result of the weakening demand outlook in China and Europe combined with growing supply from the US and Saudi Arabia’s protection of its market share in Asia.

In a statement, OPEC said it expects non-OPEC supply alone to rise by 1.36 million b/d next year to more than cover any growth in global demand.

“The increase in oil and product stock levels in OECD countries, where days of forward cover are comfortably above the five-year average, coupled with the on-going rise in non-OECD inventories, are indications of an extremely well-supplied market,” the cartel said.

UK consulting firm Wood Mackenzie concurred: its own analysis found that global oil supply will grow at a faster pace than demand in 2015, continuing the trend from this year.

“The retention of current OPEC production levels clearly puts the outlook for oil demand growth as the continued focus of crude oil pricing and, in its absence, tight oil breakeven economics. In the last year, world oil demand growth has slowed markedly and increased the difficulty in absorbing non-OPEC production growth,” said Ann-Louise Hittle, Head of Macro Oils research for Wood Mackenzie.

“There has been considerable speculation as to the motives of Saudi Arabia over recent months, as it has not cut its production significantly in spite of the drop in crude oil prices,” said Wood Mackenzie.

“With the agreement on November 24 to extend the talks with Iran to July 2015, one key near term supply concern for OPEC was removed prior to its meeting as Iran’s oil exports will not be stepping up in the first half of 2015. This price supportive factor has been lost in the OPEC meeting reaction.”

Non-OPEC producers, particularly US shale firms, will have little incentive to cut back as most remain profitable at current prices.

Wood Mackenzie said its analysis shows significant slowdown in US tight oil production growth only after several quarters of Brent staying below the US$75-$80 range or WTI slumping to US$65-$70 range.

For 2015, global oil demand growth is critical to ensuring there is an outlet for this supply increase.

Wood Mackenzie now expects global oil demand to rise 830,000 b/d in 2015, based on moderate global economic growth and China’s GDP expanding by 7.1%.

This is only marginally higher than 2014 demand growth and critically is lower than its non-OPEC annual supply growth forecast of 1.3 million b/d, resulting in a further implied stock build, particularly through the second quarter of 2015.

In its updated forecast, the consulting firm said it expects Brent and WTI to remain under downward pressure. OPEC could call for an extraordinary meeting in the first quarter if oil prices continued to weaken in early 2015.

“For now, Saudi Arabia appear comfortable with letting non-OPEC producers face the prospect of losing market share,” it said.