Brent crude traded on the brink of a bear market on speculation that Saudi Arabia will maintain output even as supplies from the US and Russia increase and demand slows.
Futures in London fell 0.3% after sliding yesterday to the lowest in more than two years. Prices are almost 20% below their June peak, a common definition of a bear market.
Saudi Arabia, the biggest exporter, cut prices this week to the lowest since 2008 for Asia, raising speculation it’s prepared to let oil fall rather than cede market share, according to Commerzbank AG. The US in July exported the most oil since March 1957, according to data from the Energy Information Administration.
“Towards the end of the year the pressure will be on the downside,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by phone from Copenhagen today. “If we don’t see a reaction from OPEC, especially Saudi Arabia, it will be difficult to really put a stop to the slide.”
Brent for November settlement slipped 24 cents to $93.18 a barrel on the London-based ICE Futures Europe exchange at 11.15am local time. The contract decreased 74 cents to $93.42 yesterday, the lowest close since June 28, 2012. The volume of all futures traded was about 17 percent below the 100-day average for the time of day. Prices have decreased 3.9% this week, the biggest weekly loss since January.
West Texas Intermediate crude for November delivery fell 18 cents, or 0.2%, to $90.83 a barrel in electronic trading on the New York Mercantile Exchange. It traded below $90 yesterday for the first time since April last year, before closing at $91.01. Prices have slid 2.9% this week. The US benchmark crude was at a discount of $2.25 to Brent on ICE, the narrowest since August 2013.
US crude production rose last month to the highest level since 1986 and OPEC pumped the most oil in a year, even as the International Energy Agency cut its projections for global consumption growth through 2015, citing a weakening economic outlook. Russia’s oil output climbed to near a post-Soviet record in September.
Goldman Sachs Group said it’s losing confidence in its forecast that Brent will recover to $100 a barrel next year. While the bank is maintaining its projection for now, it says that a lack of signs of accelerating global economic growth and uncertainty over the Organization of Petroleum Exporting Countries’ production plans amid rising Libyan output are weakening its conviction.
Saudi Aramco, the state-run oil producer of the world’s biggest exporter, reduced prices on October 1 for all its exports. The cuts spur speculation the country will allow oil prices to fall rather than pare production, said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.
“Not only may such an action lead to lower prices, but more importantly, to lower confidence in OPEC’s power to control the price,” Weinberg said by phone.
OPEC, responsible for about 40% of the world’s oil supply, pumped 30.935 million barrels a day in September, the most since August last year, based on a Bloomberg survey of producers and analysts.
Brent’s relative strength index on the weekly chart has fallen below 30, indicating that the market may be oversold, data compiled by Bloomberg show.
“After a big drop yesterday, selling pressure might be over,” Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said by phone. “OPEC has still to make a decision to cut supply so it’s possible to see short-covering.”
WTI may decline next week, according to a separate Bloomberg survey. Fifteen of 25 analysts and traders, or 60%, predict futures will fall through October 10, while eight respondents said prices will increase.