Brent falls more, Saudi Arabian king issues speech


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Apr 13, 2013

(Reuters) - Oil prices fell to fresh 5-1/2 year lows on Tuesday, extending losses after a 5 percent plunge in the previous session as worries over a global supply glut intensified. Brent crude fell close to $51 a barrel, its lowest since 2009, with cuts to Saudi Arabia's official selling prices to Europe this week adding more pressure to the 55 percent price rout since June.

Saudi Arabia's King Abdullah said in a speech read for him on Tuesday the country would deal with the challenge posed by lower oil prices "with a firm will" but gave no sign the world's top exporter was considering changing its policy of maintaining production in the face of fast-growing U.S. shale supplies.

"We would need an indication that Saudi Arabia is considering output cuts," said Carsten Fritsch, a commodities analyst with Commerzbank.The Saudi official price cuts on Monday added to bearish data over the weekend showing that Russia's 2014 oil output hit a post-Soviet-era high and December exports from Iraq, OPEC's second-largest producer, reached their highest since 1980.

Brent crude LCOc1 fell as low as $51.23 a barrel on Tuesday, its lowest level since May 2009. It recovered slightly to $51.95 at 1310 GMT (0810 ET), down $1.16 on the day. U.S. crude CLc1 was at $48.94, down $1.10, after falling to $48.47, its lowest since April 2009.

Fritsch at Commerzbank said other countries including Iraq, Iran and Kuwait are likely to cut their official selling prices in the coming days. The United Arab Emirate cut its prices on Tuesday. Jitters over political uncertainty in Greece, and a downward revision on Tuesday to Europe's December Composite Purchasing Managers' Index (PMI), raised questions about energy demand in Europe and compounded the bearish sentiment.

A slew of factors was keeping up the downward pressure on prices, analysts said, pointing to concerns about the Greek economy, high oil output from Russia, Iraq and the United States, and a stronger dollar.
"The weak euro should be one of the reasons," said Tamas Varga of PVM oil brokerage in London. "When the Saudis are cutting prices, the markets are not going to go higher."

In the face of official price cuts, markets shrugged off news about rising hostilities and lower oil production in Libya, as well as data showing the number of rigs drilling for oil in the United States fell for a fourth straight week. U.S. commercial crude oil and products stockpiles were forecast to have risen in the week ending Jan. 2, a preliminary Reuters survey showed on Monday.

Personal Comment- The USA was about to become the number 1 oil producer in the world (due to hydrological fracturing). With this threat to their only source of income in mind, the members of OPEC increased supply even with falling oil prices, thus contributing to a worldwide oil glut (further reducing prices). The goal of OPEC is to drive out of business the US fracking companies (who have a break even point of between 50-60USD/barrel.

There is one serious issue about this which hasn't gotten enough press- Many (all) of the multitude of Oil Frackers in the US have funded their operations through either loans from major Banks or through the issuance of Bonds. If these companies close up shop this would lead to loan and bond defaults which may produce another crisis like 2008.
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