OIL PRICES DROPPED

West Texas Intermediate dropped to the lowest intraday level in three years as Saudi Arabia cut prices for crude exports to U.S. customers amid speculation that stockpiles increased. Brent extended losses in London.

Futures fell as much as 2 percent to $77.20 a barrel, the weakest since Oct. 5, 2011. Saudi Arabian Oil Co. reduced December differentials for all grades it ships to the U.S., while supplies to Asia and Europe were priced higher, according to an e-mailed statement. U.S. crude inventories climbed by 1.9 million barrels last week to a four-month high, a Bloomberg News survey shows before government data tomorrow.

Oil slid in October by the most since May 2012 as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut output. Global supplies are rising, with the U.S. pumping at the fastest pace in more than three decades.

"It's now a game of chicken between OPEC members and the U.S. to fight for market share" in the world's biggest oil-consuming nation, Will Yun, a commodities analyst at Hyundai Futures Co. in Seoul, said by phone today. "Expanding crude stockpiles in the U.S. won't be enough to make OPEC cut its output unless prices significantly drop to below $75."

WTI for December delivery fell $1.27 to $77.51 in electronic trading on the New York Mercantile Exchange at 4:14 p.m. Singapore time. The contract lost $1.76 to $78.78 yesterday. The volume of all futures traded was more than double the 100-day average. Prices are down 21 percent this year.

Brent for December settlement declined as much $1.66, or 2 percent, to $83.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.06 to WTI. The spread widened for a fourth day to close at $6 yesterday.

Saudi Prices

Saudi Arabia, OPEC's largest producer, reduced the premium of Arab Light to U.S. Gulf Coast benchmarks by 45 cents a barrel to the lowest level this year. Discounts for Medium and Heavy grades were widened for a fourth month, according to Saudi Aramco, the state oil company.

OPEC, responsible for about 40 percent of the world's crude supply, is scheduled to discuss output policy at a Nov. 27 meeting in Vienna. Its 12 members are producing more than their collective target of 30 million barrels a day, which has been maintained since January 2012.

"OPEC needs to have something on hand to protect its market share and the only thing it has is control over prices," Yun said. "Falling oil prices will hurt the group, yet it will continue to resist supply cuts."

Oil Stockpiles

U.S. crude inventories probably increased to 381.6 million barrels through Oct. 31, according to the median estimate in the Bloomberg survey of six analysts. That would be a fifth weekly gain. Production in the prior seven days accelerated to 8.97 million barrels a day, the highest in data going back to January 1983, said the Energy Information Administration.

Gasoline stockpiles are projected to have decreased by 1 million barrels while distillate fuels, including heating oil and diesel, probably shrank by 2.2 million, the survey shows.

The American Petroleum Institute in Washington will publish separate supply data today. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines, while the government requires that reports be filed with the EIA, the Energy Department's statistical arm.

bloomberg.com