U.S. oil prices tumbled Tuesday, posting their biggest
one-day drop in two years on signs that the Organization of the Petroleum
Exporting Countries was unlikely to cut production in response to lower
forecast demand. Market participants have closely watched OPEC, which controls
about one-third of global oil supplies, in recent weeks as high supplies and
weaker demand have pushed prices down more than 20%. OPEC has responded to low
prices in the past with production cuts, but recent signals from members have
been mixed. Saudi Arabia, the group’s biggest oil producer, has indicated in
recent days that it is comfortable with lower prices.
But on Tuesday, Saudi Prince al-Waleed bin Talal posted an
open letter to the kingdom’s oil minister stating that Saudi Arabia needs
prices between $80 and $90 a barrel to balance its 2014 budget. The current
lower prices pose “a huge financial loss for the kingdom.” The letter could
have sparked concern among traders that internal conflicts within OPEC will
prevent unified action.
In contrast, Iran said Tuesday that an oil price drop won’t
hurt its budget and will be short-lived, surprising some market watchers.
Light, sweet crude for November delivery fell below $83 a
barrel after the letter’s contents were reported, and the price slide
accelerated into settlement. November futures ended down $3.90, or 4.6%, at
$81.84 a barrel on the New York Mercantile Exchange, the lowest settlement since
June 28, 2012. Prices posted the largest one-day percentage drop in nearly two
years.
Brent, the global benchmark, fell $3.85, or 4.3%, to $85.04
on ICE Futures Europe, the lowest price since Nov. 23, 2010. It was the largest
one-day percentage drop since September 2011.
After hitting multiyear lows Monday, prices continued to
slide on Tuesday after the International Energy Agency cut its forecasts for
oil-demand growth this year and next. The two other major forecasting
agencies—OPEC and the U.S. Energy Information Administration—already cut their
demand-growth projections in reports released last week.
In its closely watched monthly oil market report, the
Paris-based energy watchdog cut its forecast for 2014 oil-demand growth by
200,000 barrels a day to just 700,000 barrels a day. The IEA said it sees
demand picking up next year, increasing by an annual 1.1 million barrels a day.
But oil supply looks set to continue growing strongly, the agency said.
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