Brent crude was poised for the lowest close in more than five years on Friday, as Saudi Arabia offered customers in Asia the biggest discount on record for its crude, boosting speculation its defending market share.
Futures slid as much as 1.1 percent in London heading for a second weekly decline. 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.
That’s the lowest in at least 14 years. The kingdom doesn’t want to subsidize Iran, Iraq and Venezuela and is willing to let the market decide prices, said Daniel Yergin, an energy analyst and Pulitzer Prize-winning author.
Crude slumped 18 percent last month as the Organisation of Petroleum Exporting Countries (OPEC) maintained its output quota, letting prices decrease to a level that may slow US production. 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 battle for market share seems to pick up as Saudi Arabia yesterday (Thursday) cut selling prices to the US and Asia,” Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark, said.
Brent for January settlement slid as much as 74 cents to $68.90 a barrel on the London-based ICE Futures Europe exchange and was at $68.96 at 12:05pm local time.
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 US customers, the statement showed.
“It’s basically a new game in world oil,” Yergin, the vice chairman of IHS Inc., an Englewood, Colorado-based consultant, said on Bloomberg TV. “The Saudis have almost $800 billion in foreign exchange reserves, so they can wait this out.”
Saudi Arabia’s Oil Minister Ali Al-Naimi resisted calls from OPEC members including Venezuela to cut output at a November 27 meeting in Vienna. The group, which supplies about 40 percent of the world’s oil, has maintained an official target of 30 million barrels a day since January 2012.
OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective quota for a sixth straight month, according to a Bloomberg survey of oil companies, producers and analysts.
US oil production expanded to 9.08 million barrels a day through November 28, the fastest rate in weekly records that started in January 1983, the Energy Information Administration reported this week. An estimated 80 percent of shale output next year will still be profitable from $50 to $70 a barrel, Yergin said.
WTI may fall next week, a separate Bloomberg survey showed. Nineteen of 36 analysts and traders, or 53 percent, predict futures will decrease through December 12, while six forecast a price gain.
