Brent and West Texas Intermediate crudes are poised for the lowest close in more than five years after Saudi Arabia offered its oil customers in Asia the biggest discount on record, signaling it’s defending market share.
Crude oil fell as much as 1.4 percent in London and 1.7 percent in New York. State-run Saudi Arabian Oil Co. extended its discount for Arab Light sales to Asia next month to $2 a barrel below a regional benchmark, according to a company statement yesterday. That’s the lowest in at least 14 years. The kingdom doesn’t want to subsidize Iran, Iraq and Venezuela, said Daniel Yergin, an energy analyst and Pulitzer Prize-winning author.
Futures slumped 18 percent last month as the Organization of Petroleum Exporting Countries maintained its output target, letting prices decrease to a level that may slow U.S. production growth. Saudi Arabia has no price target and will let the market decide at what level oil should trade for now, said a person familiar with its policy.
“The market’s responding to a double whammy of Saudi pressure,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “The market was still feeling the aftereffects of the OPEC meeting and then the Saudis dropped the hammer with their $2 cut in the OSP. This will take several days to play out and we still have to see how their rivals respond.”
Brent for January settlement fell 77 cents, or 1.1 percent, to $68.87 a barrel on the London-based ICE Futures Europe exchange at 9:50 a.m. New York time. A close at that level would mark the lowest since October 2009. Total volume was 14 percent below the 100-day average for the time of day. Prices, down 1.8 percent this week, have dropped 38 percent this year.
WTI for January delivery dropped 96 cents, or 1.4 percent, to $65.85 a barrel on the New York Mercantile Exchange. Volume was 39 percent below the 100-day average. Prices are down 0.4 percent this week and down 33 percent in 2014. The U.S. benchmark grade traded at a $2.86 discount to Brent.
Saudi Aramco’s Arab Light discount, which widened from 10 cents for December, is the steepest in data compiled by Bloomberg since June 2000. Its Arab Medium grade, which Iran, Iraq and Kuwait have followed in the past, was cut to the lowest since January 2009. The state-run oil company also reduced all January price differentials for U.S. customers.