Oil drops again on Saudi price cut; Brent below $70

A man changes the price for a gallon of gasoline at a petrol station in Medford, Massachusetts on Thursday. Brent crude oil fell below $69 a barrel after Saudi Arabia announced deep cuts in selling prices for Asian and US buyers, a week after refusing to support Opec output cuts.

Reuters/New York

Oil fell in choppy trading on Thursday as the debate for a sustainable price level continued after Saudi Arabia announced deep discounts for the crude it sells to Asian and US buyers in an apparent attempt to defend its market share.

News that Libya's El Sharara oil field, one of Opec's largest, might be ready to resume output after a pipeline blockage was cleared also weighed on sentiment in an oversupplied market. The El Sharara produced 300,000 barrels per day before it closed last month following clashes between armed groups.

Losses in oil and other dollar-denominated commodities were capped, however, by a weaker US dollar against the euro amid uncertainties on whether the European Central Bank would introduce fresh stimulus into the euro zone economy.

Benchmark North Sea Brent crude was down 80 cents at $69.12 a barrel by 11.15 am EST after trading in a wide band of nearly $2. US crude was down $1.05 cents at $66.33 a barrel, having fallen to 66.09 earlier.

Saudi Arabia's state-owned oil company cut the January price for its Arab Light grade for Asian customers by $1.90 a barrel from December to a discount of $2 a barrel to the Oman/Dubai average.

The Arab Light Official Selling Price to the US was set at a premium of $0.90 a barrel to the Argus Sour Crude Index (ASCI) for January, down 70 cents from the previous month.

Saudi Arabia was key in blocking the Organisation of the Petroleum Exporting Countries last week in reducing output to support prices. It argued that low prices would instead force US shale oil producers, who have flooded the market, to cut back.

"This is the second salvo in the Opec price war, a new offensive by the Saudis," said Phil Flynn, analyst at the Price Futures Group in Chicago.

More than 30 economists and analysts polled by Reuters after Opec's November 27 meeting forecast an average Brent price of $82.50 a barrel in 2015, down $11.20 from the previous poll. This was the biggest downgrade in average forecasts since the global economic crisis in 2008.