Oil Slides to Near 6-Year Low; Saudi Arabia Holds Firm Despite Supply Glut

Oil fell from the lowest closing price in almost six years amid signs that Saudi Arabia’s new king will maintain its production policy, bolstering speculation that a global glut will persist. Futures dropped as much as 2.7 percent in New York, extending last week’s 6.4 percent slide. King Salman, who took the Saudi throne on Jan. 23, pledged to maintain the policies of his predecessor. U.S. inventories climbed to the highest level for December since 1930, the American Petroleum Institute reported. Greek voters handed election victory to Syriza, a party that’s pledged to end austerity and renegotiate an international bailout. Oil slumped almost 60 percent since June as the Organization of Petroleum Exporting Countries resisted calls to cut output and the U.S. pumped at the fastest pace in more than three decades. Saudi Arabia, the world’s biggest exporter, has chosen not to reduce supply and counts instead on lower prices to stimulate demand, according to Mohammad Al Sabban, an adviser to the kingdom’s petroleum minister from 1988 to 2013. “All the indications from the Saudis point to no major policy changes,” Ole Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by phone. “The market’s focus remains on supply that isn’t being met by demand.” Greek election West Texas Intermediate for March delivery decreased as much as $1.24 to $44.35 a barrel in electronic trading on the New York Mercantile Exchange and was down 57 cents to $45.02 at 12:14 p.m. London time. The contract lost 72 cents to $45.59 on Jan. 23, the lowest close since March 2009. The volume of all futures traded was 24 percent above the 100-day average for the time of day. Brent for March settlement slid as much as $1.22, or 2.5 percent, to $47.57 a barrel on the London-based ICE Futures Europe exchange. It gained 27 cents to $48.79 on Jan. 23. The European benchmark crude traded at a premium of $3.14 to WTI. “The markets appear to be taking the results of the Greek election in stride, given indications that the new majority wishes Greece to stay within the euro zone,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, said in an e-mail. “Oil remains squarely focused on supply-side developments.” U.S. Stockpiles Crude inventories in the U.S., the world’s largest oil consumer, increased 7.4 percent from a year earlier to 383.5 million barrels in December, the API in Washington said in a monthly report on Jan. 23. Production accelerated 16 percent 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. Crude stockpiles in China, the world’s second-biggest oil consumer, expanded almost 9 percent last year to an estimated 33.37 million metric tons, according to a newsletter from the official Xinhua News Agency. That’s about 244.6 million barrels. Saudi Arabia, OPEC’s largest producer, led the group’s strategy of maintaining production levels amid the market collapse. While smaller members including Venezuela called for action to prop up prices, Oil Minister Ali Al-Naimi highlighted the need to preserve market share. Saudi Minister Al-Naimi, who has driven decision-making since 1995, was retained by King Salman along with current Saudi ministers, according to the official Saudi Press Agency. This was an important sign of stability for the market and Al-Naimi will probably remain in his post “at least until it is clear whether the strategy is working or not,” Michael Wittner, head of oil-market research at Societe Generale SA, said in an e-mailed report. OPEC, whose 12 members supply about 40 percent of the world’s oil, decided at a Nov. 27 meeting to maintain output quotas at a collective 30 million barrels a day. It pumped 30.2 million a day in December, exceeding that target for a seventh straight month, a Bloomberg survey of companies, producers and analysts shows. Hedge funds and other money managers boosted bearish bets on WTI to the most since September 2010 in the week ended Jan. 20, the Commodity Futures Trading Commission reported on Jan. 23. Net-long positions shrank for the first time in three weeks. Money managers cut net-long positions in Brent to 141,983 lots in the week to Jan. 20, the first reduction since the week that ended Dec. 23, according to data from ICE Futures Europe. To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron