Oil declined more than 3% on Tuesday, hitting new lows as Saudi Arabia’s sharp cuts in export prices to the US seemed likely to deepen the global supply glut that has driven the prices down 30% since June.
On Monday, Saudi Arabia cut prices for US consumers and raised prices for Europe and Asia. Oil dropped as much as $2 per barrel in late trade, and technical sell-stops triggered on Tuesday with the continued sell-off.
Price Futures Group Phil Flynn was quoted by Reuters as having said, “The Saudi’s have basically declared war on the US oil producers. I think they believe that the only way they’re going to survive in the long term is to break the market in the short term.”
If prices fall to lows that could threaten the US output of oil, the US energy-producing companies might suffer some harm as will the states that benefit from shale-oil drilling, which include North Dakota and Texas.
The concern is evident in the stock with declines in energy such as Exxon Mobil Corp. and Chevron Corp dragging the markets in the past two days, as reported by The Wall Street Journal.
Declines in prices of oil have reverberated to other commodities with corn and sugar, the most widely used for ethanol trading lower on Tuesday amid concerns that cheaper gasoline would make ethanol less competitive for refiners to use in motor fuels.
December delivery light sweet oil dropped 2.4% or $1.87 to $76.91 per barrel on the New York Mercantile Exchange, the lowest intraday level from October 2011. The global benchmark, Brent, dropped 2% or $1.70 to $83.08 per barrel on the ICE Futures Europe near the four-year intraday lows.
The Saudi’s cut prices for oil sold in December in United States, shocking traders and fueling fears that the kingdom is trying to compete directly with production of shale oil. This move might force oil prices to fall below $70 per barrel.
Managing director at AlixPartners LLP, Denis Cassidy said, ‘The Saudi’s are frustrated with losing market share in North America. Everyone is watching the Saudi’s with extreme emphasis.”
To contact the reporter of the story: Jonathan Millet at email@example.com