OIL HAS FALLEN

Brent crude hit a 28-month low on Thursday while benchmark US oil dropped below the $90 a barrel mark for the first time since April 2013, pointing to significant stocks on both sides of the Atlantic.

ICE November Brent, the international oil benchmark, fell $2.23 to $92.04 a barrel – the lowest since June 2012. Nymex November West Texas Intermediate eased $2.07 to $88.57.

The latest sell-off came after Saudi Arabia noticeably lowered its official selling prices for its customers across all regions in November. In some cases, prices were at levels similar to those during the 2008-09 financial crisis.

"Such measures give rise to doubts about Opec's longstanding strategy of striving above all for price stability," said Carsten Fritsch, analyst at Commerzbank.

Brent has fallen from $115 a barrel in mid-June amid an oversupply from the North Sea and Atlantic Basin, which has coincided with greater North American production. Sustained output from Iraq and Libya – despite violence ravaging both countries – has also kept prices at bay, as has weaker demand from Europe and China.

Last month, both the International Energy Agency, the wealthy nations' energy watchdog, and Opec lowered projections of crude demand for next year, prompting talk of a cut in the oil cartel's output targets in defence of the key $100-a-barrel price level.

But the numbers from state-owned oil company Saudi Aramco on Wednesday signalled that the oil cartel's largest producer was unlikely to curb production even amid an excess of crude oil supply as it seeks to gain market share in key export regions, some analysts said.

Prices to Asia were lowered by 60 cents to $1.20 a barrel, depending on the grade, those to the Mediterranean fell by 80 cents to $1, prices to northwest Europe declined by 20 to 40 cents, while those for the US dipped by 20 to 40 cents.

"Opec appears to be gearing up for a price war," said Mr Fritsch. "We therefore do not expect prices to stabilise until this impression disappears and Opec returns to co-ordinated production cuts."

However, Adam Longson, analyst at Morgan Stanley, said the drop in Saudi prices was "mostly driven by significant shifts in regional pricing" rather than a fight for market share. Atlantic crudes are trading at multiyear lows compared to those from Dubai, for example, making them more attractive to buyers in Asia.

Saudi oil minister Ali al-Naimi last month sought to calm anxieties amid the recent oil price falls, while Suhail bin Mohammed al-Mazroui, oil minister for the UAE, said it was still too early to decide whether Opec should lower output ahead of its November meeting.

Even so, Iran's oil minister called on Opec nations to work together to prevent a further price slide, highlighting the split among members of the cartel over how to react to the sharp drop in crude prices in recent weeks.

Although Saudi Arabia and the UAE are able to tolerate further falls with fiscal break-even prices – the price at which the budget is balanced – at $89 and $74 a barrel, Iran's stands at about $130, according to data compiled by Citigroup.

"Oil [prices are] very close to a level that should cause discomfort to Saudi Arabia's fiscal balances," said Abhishek Deshpande, analyst at Natixis. "Other Opec producers such as Iran, Iraq, Libya, Algeria are most definitely suffering from the delay in cutbacks."

Asdrúbal Oliveros, head economist at Ecoanalítica, a Caracas-based consultancy, said that if the oil price continued to drop it would take a $3.4 bn toll on Venezuela's total oil revenues by the end of this year.

Meanwhile, the US Energy Information Administration said on Wednesday that US crude oil inventories decreased by 1.4m barrels last week, but stockpiles at Cushing, Oklahoma – the delivery point for WTI contracts – increased by 315,000 barrels to 20.5m last week.

Despite the recent US data, refinery demand for crude is higher than the same period a year ago, while imports are much lower. Exports – which hit a 57-year high in July, the EIA reported on Monday – are also likely to be greater than initially reported, analysts have said.

ft.com