Oil at 3-year low after Saudis cut selling prices for U.S.

November 04:


Shutterstock/Fedor Selivanov
Saudi Arabia upends the oil market.

Crude-oil prices hit multi-year lows on Tuesday, as the market struggled in the aftermath of price cuts by Saudi Arabia for the U.S. and a weak growth forecast for Europe.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in December CLZ4, -2.60%  traded at $76.68 a barrel, down $2.09, or 2.7%, in the Globex electronic session. On a continuous contract basis, WTI was at its lowest level since October 2011. It tapped an intraday low of $75.84, after the European Commission cut its growth forecasts for the 18-country eurozone, plunging over 3.5% at one point.
The pain was similar for December Brent crude LCOZ4, -2.57%  , which fell $2.21, or 2.6%, to $82.58 a barrel on London’s ICE Futures exchange. Brent has not traded at these levels since October 2010.
Saudis cuts deep: “News that Saudi has cut its asking price to customers in the US suggests even the largest OPEC producer is now worried about its market share. This does not bode well for the future of the cartel,” said Fawad Razaqzada, technical analyst at FOREX.com in a note.
Saudi Arabia, the world’s top crude exporter, adjusted prices for its December cargos on Monday, lowering its price differentials for sales to the U.S. but raising the differentials for its Asian customers.
While the price adjustments were not as severe as the cuts for November, the lowering of prices for the U.S. market was interpreted by the market as stiffer competition against U.S. domestic crude production, traders said
The pricing of Saudi Arabian and other Middle East oil producers for the U.S. market is based on the Argus Sour Crude Index, a basket of prices that’s much lower than prices in Asia. So it makes more sense for oil producers to focus on the market where premiums are higher, traders said.
Strength in the greenback on the back of stronger U.S. economic data is also weighing on commodities markets, including oil.
Later Tuesday, the American Petroleum Institute will publish initial data on U.S. oil inventory that’s 
expected to show another rise, putting more pressure on oil prices.
“We still think there’s a little bit more to fall before we see a recovery,” Torbjorn Kjus, chief oil analyst at DNB Bank said at a presentation in Singapore. He said oil prices will struggle to recover to the $110 level seen earlier this year, and perhaps even to the $100/bbl level, as fundamental factors are weaker than the prices suggest.
There is a deeper and longer drop in prices now than was seen in the price correction of 2012, and future prices suggest a much weaker physical market, Kjus said.
Ole Hansen, head of commodity strategy at Saxo Bank, said WTI crude has a band of support between $75 and $77 (the 2010 and 2011 lows), while support for Brent stands at $82.30, which is 50% of the 2008-to-2012 rally.
Nymex reformulated gasoline blendstock for December RBZ4, -2.26% the benchmark gasoline contract, fell 5 cents, or 2.2%, to $2.071 a gallon.
Source: www.marketwatch.com/story/oil-slides-on-speculation-about-saudis-pricing-strategy-2014-11-04-310308?siteid=rss&rss=1

Comments