Oil slides as Saudi Arabia seen holding firm amid supply glut

[NW YORK] Oil fell to the lowest level in almost six years amid speculation that Saudi Arabia's new king will maintain its production policy and as expanding US crude inventories added to signs a global glut may persist.

Futures dropped as much as 2.7 per cent in New York, extending a 6.4 per cent slide last week. King Salman Bin Abdulaziz, who took over after the death of King Abdullah on Jan 23, pledged to maintain the policies of his predecessor in a speech on Saudi national television. US stockpiles climbed to 383.5 million barrels last month, the highest level for December since 1930, the American Petroleum Institute reported.

Oil slumped almost 50 per cent last year as the Organization of Petroleum Exporting Countries resisted calls to cut output even as US pumped at the fastest pace in more than three decades. Saudi Arabia, the world's biggest exporter, has chosen not to reduce supply and count instead on lower prices to stimulate demand, according to Mohammad Al Sabban, an adviser to the kingdom's petroleum minister from 1988 to 2013.

"Crude production needs to slow down first to decelerate the speed of stockpiling, which is seen to be even faster than during the 2008 financial crisis," Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone. "With Saudi Arabia, the market hardly reacted last week and will remain unchanged as King Salman is known to be very conservative." US Supplies West Texas Intermediate for March delivery declined as much as US$1.24 to US$44.35 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.99 at 10:43 am Seoul time. The contract lost 72 cents to US$45.59 on Jan 23, the lowest close since March 2009. The volume of all futures traded was almost three times the 100-day average.

Brent for March settlement decreased as much as 94 cents, or 1.9 per cent, to US$47.85 a barrel on the London-based ICE Futures Europe exchange. It gained 27 cents to US$48.79 a barrel on Jan 23. The European benchmark crude traded at a premium of US$3.34 to WTI.

Crude stockpiles in the US, the world's largest oil consumer, increased 7.4 per cent in December from a year ago, the API said in a monthly report. Production accelerated 16 per cent to 9.12 million barrels a day, the highest level for any month since February 1986, according to the industry group.

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.

BLOOMBERG