Oil price drops under $92 to 27-month low

OPEC appears to be gearing up for a price war.

OPEC appears to be gearing up for a price war.

LONDON : Oil prices fell to their lowest level since June 2012, after price cuts from top producer Saudi Arabia added to supply glut worries and weak global economic data.

Oil declined alongside European stocks as the European Central Bank left interest rates unchanged on Thursday, as expected. ECB President Mario Draghi said that a planned bond purchase program would last at least two years.

Brent crude for November delivery was down $1.73 at $92.43 a barrel by 1341 GMT. It earlier hit $91.55, its lowest since June 2012.

US November crude lost $1.06 to reach $89.67 per barrel, a near 18-month low.

Sharp cuts in official selling prices from state producer Saudi Aramco to Asian customers on Wednesday came as the clearest sign yet that the world’s largest exporter is trying to compete for crude market share, amplifying supply concerns.

“This is a structural change in the oil market, with Saudi Arabia explicitly stating that they are willing to compete on price,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

“I think Brent will fall below $88 before we see the bottom of the market.”

Carsten Fritsch at Commerzbank said Saudi Arabia’s price differentials are now near the lowest since December 2008, in the midst of the 2008/2009 economic crisis.

“OPEC appears to be gearing up for a price war. We therefore do not expect prices to stabilize until this impression disappears and OPEC returns to coordinated production cuts,” Fritsch said.

While Saudi price cuts triggered Thursday’s plunge, oil prices have been falling for months under the combined pressure of a revival in Libyan oil production, strength in the US dollar and dismal economic data in Asia and Europe.

“Whatever period we look at, whether it be this month, quarter or year, the oil market has been hugely disappointing,” PVM’s David Hufton said in an analyst note, adding that the “ever-increasing global supply” was the root cause.

Providing some support, US data on Thursday showed an unexpected decrease in unemployment claims over the past week, ahead of monthly employment data on Friday which economists expect to show an increase in the size of the labor force.

Some analysts said a cut in production from the Organization of the Petroleum Exporting Countries (OPEC) at its meeting next month was the only move that could enable a price recovery.

While some expected OPEC to adjust the group’s output target of 30 million barrels per day (bpd) for 2015, any cut may still not be big enough to spur a bounce in oil prices.

SEB’s Schieldrop said OPEC would need to cut around 1-1.5 million barrels a day in production in order to balance the markets in 2015.

Oil production in Russia increased by almost 0.9 percent month-on-month in September to 10.61 million barrels per day (bpd), Energy Ministry data showed.

Data on Wednesday showed disappointing European factory data, and China’s manufacturing sector in September remained subdued. US economic strength, a rare bright spot for global markets, showed signs of caution following worries of an Ebola outbreak.

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