04 November 2014 – Oil tumbled by as much as $2 a barrel in the final minutes of regular trade on Monday, hitting new lows in New York as Saudi Arabia deepened price cuts for US customers even though it hiked prices for the rest of the world.
US crude dove to its lowest since mid-2012, with technical selling swamping the market, helping drive the curve into a contango structure, with short-term prices cheaper than long-dated ones, for the first time since January.
A rising dollar and concerns about Chinese economic growth set a bearish tone early in the session, but global benchmark Brent crude briefly turned positive after news that Saudi Aramco had hiked their monthly selling prices to Asia and Europe, a signal that some took as a sign of plans for lower output.
But Aramco also cut its prices for US customers, a fact that soured market sentiment over the afternoon. The decline accelerated after US prices broke the 27 October intraday low of $79.44 a barrel, traders said.
“The market continues to hunt for a bottom. There is more than ample supply, no producers seem willing to cut back, there are fears Europe could fall into recession and China’s growth is continuing to slow,” said Gene McMillian, senior analyst at tradition Energy in Stamford, Connecticut.
US crude hit a low of $78.14 per barrel, its lowest since June 2012, before settling down $1.76 at $78.78.
Brent crude fell as low as $84.18 per barrel but settled at $84.78.
The dollar powered to a seven-year peak against the yen and a two-year high against the euro on Monday, extending gains after the Bank of Japan’s latest stimulus move and weighing on oil, which is priced in the US currency.
Stronger-than-expected US manufacturing data for October helped boost the dollar, while Chinese economic data pointed to slowing overall growth and the risk of falling oil demand from the world’s second-largest economy.
“Chinese data is really ultimately weak so is demand really going to be there for oil at a higher price?” said Bill Baruch, senior market strategist at iitrader.com LLC in Chicago.
Benchmark Brent crude oil has fallen 25% from a high above $115 a barrel in June as abundant supply has overwhelmed demand in most parts of the world, filling stocks, while concerns about global growth have mounted.
Opec meets in Vienna on 27 November to decide on production targets for next year, and market participants are looking for any sign on whether the producer group will move to shore up prices by trimming output.
Some oil traders saw the latest price hikes from state oil firm Saudi Aramco, reversing some price cuts the previous month, as an indication the kingdom could be seeking to cut production.
Saudi Arabia has previously signalled it was willing to put up with lower oil prices, and last month’s big price cuts had triggered a deeper decline in global markets.
But Joseph Posillico, senior vice president of energy derivatives at Jefferies LLC in New York, said he would not put too much weight on the price hike as an indicator of OPEC intentions.
“The fact that they raised the price spiked the market because they had that larger discount last month,” he said.
Saudi Oil Minister Ali al-Naimi will visit Venezuela this week to attend a climate conference, according to sources close to the kingdom. However, a Caracas-based source declined to say whether he would be discussing oil prices.