Another Milestone: Oil Below $60 A Barrel
West Texas Intermediate oil dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share. Brent fell to a five-year low.
Futures slid 1.6% in New York and 0.9% in London. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted Dec. 10.
Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.
“The path of least resistance is lower,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone. “This week, we’ve had the Saudis cut prices to Asia, OPEC reduced the call on its crude and al-Naimi reiterated that they aren’t cutting output and letting the market do its work. They all reinforce the bearish message.”
WTI for January delivery dropped 99 cents to close at $59.95 a barrel on the New York Mercantile Exchange. It was the lowest settlement since July 14, 2009. Total volume was 14% above the 100-day average for the time of day. The U.S. benchmark is down 39% this year.
The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations, including the Eagle Ford in Texas and the Bakken in North Dakota.
“Is WTI at $60 enough to cause a meaningful cut in U.S. production this month? I don’t think so,” Christopher Bellew, senior broker at Jefferies International Ltd. in London, said by e-mail. “We will have to see lower prices before non-OPEC production cuts emerge.”
