Oil drops as Saudis resist output cuts amid rising US supplies

[MELBOURNE] Oil fell as Saudi Arabia, the world's biggest exporter, signaled it won't act to balance the market while forecasts for US crude inventories to rise bolstered speculation that a global glut will persist.

Futures dropped as much as 2 per cent in New York.

Supply and demand and the "rules of economics will govern," Khalid Al-Falih, said the chief executive officer of Saudi Arabian Oil Co, said at a conference in Riyadh.

Crude stockpiles probably expanded for a third week, a Bloomberg News survey shows before an Energy Information Administration report on Wednesday.

Oil slid almost 50 per cent last year as the US pumped at the fastest pace in more than three decades while the Organization of Petroleum Exporting Countries resisted calls to cut supply. Saudi Oil Minister Ali Al-Naimi, who has said non-Opec producers should reduce their output first, met with the ambassadors of Russia and Norway to discuss market stability, according to the kingdom's official press agency.

"It's interesting that the Saudis are repeating their position as strongly and as often as they are," Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone.

"That does indicate a degree of planning to make sure that nobody is under any illusions about where they stand on this, including other OPEC members."

West Texas Intermediate for March delivery decreased as much as 90 cents to US$45.33 a barrel in electronic trading on the New York Mercantile Exchange and was at US$45.45 at 4:20pm Singapore time. The contract climbed US$1.08 to US$46.23 on Tuesday, the first gain in four days. The volume of all futures traded was about 33 per cent below the 100-day average.

Brent for March settlement lost as much as 81 cents, or 1.6 per cent, to US$48.79 a barrel on the London-based ICE Futures Europe exchange. It advanced US$1.44 to US$49.60 on Tuesday. The European benchmark crude traded at a premium of US$3.51 to WTI.

Saudi Arabia, Opec's largest producer, led its decision at a November meeting to maintain collective quotas at 30 million barrels a day. The 12-member group, which supplies about 40 per cent of the world's oil, produced 30.2 million a day last month, data compiled by Bloomberg show.

"Saudi Arabia will not singlehandedly balance the market in a downturn," Mr Al-Falih said on Tuesday, reiterating government policy. With its output capacity maintained and exports declining, "imbalance in the market absolutely has nothing to do with" the kingdom, he said.

WTI and Brent may drop to the "high US$30s" in the next few months amid the supply surplus, Barclays Plc predicted. The bank cut its 2015 forecast for Brent to US$44 a barrel, down from its Dec 1 estimate of US$72, and reduced its WTI projection to US$42 compared with US$66 previously.

The global glut will continue at least into early next year, analysts including New York-based Michael Cohen said in an e-mailed report.

Crude inventories in the US, the world's biggest oil consumer, probably increased by 3.85 million barrels to 401.7 million in the week ended Jan 23, according to the median estimate in the Bloomberg survey of 10 analysts. That would be the highest level in records compiled since August 1982 by the EIA, the Energy Department's statistical arm.

Stockpiles rose by 12.7 million barrels last week, the industry-funded American Petroleum Institute in Washington said, based on reports on Twitter.

The nation's oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked shale formations from Texas to North Dakota. Production averaged 9.19 million barrels a day through Jan 9, the most in weekly EIA records dating back to January 1983.

In China, oil demand is forecast to expand by 3 per cent to 534 million metric tons this year, China National Petroleum Corp, the country's largest oil and gas producer, said in an annual research report. That's about 10.7 million barrels a day. China is the world's second-biggest oil user, estimates from the Paris-based International Energy Agency show.

BLOOMBERG