Oil hits new 5.5-year lows on supply glut, Saudi move

Oil tumbled Tuesday to fresh 5.5-year lows, plagued by a supply glut, demand fears in the faltering global economy, and the strong dollar.
Crude futures were also hit as OPEC kingpin Saudi Arabia reportedly cut its European and US export prices in order to maintain market share.
US benchmark West Texas Intermediate for February tanked $2.29 to $47.75 a barrel, a low last witnessed in late April 2009.
Brent North Sea crude for delivery in February dived $2.15 to $50.96 per barrel, the lowest level since early May of the same year.
"The market is still worried that there are no signs that the supply glut will start falling," Nordea Markets analyst Thina Margrethe Saltvedt told AFP.
"The excess supply comes on top of a persistent slowdown in global demand led by a weaker growth outlook in China, Japan and the European Union."
Saltvedt added: "The bearish market sentiment and high uncertainty characterising the market now, have led to a selloff".
- Saudi alters export prices -
Traders noted that Saudi Aramco, the kingdom's state-owned oil company, had this week cut its selling price for Arab light grade bound for Europe and the United States -- but lifted them for Asia.
"Saudi Aramco’s pricing adjustments for February-loading crude barrels brought a set of heavy cuts for European buyers, contrasting with increases across the board for barrels going to Asia," said analysts at Vienna-based consultancy JBC Energy.
"European differentials have been moved to the lowest level in several years, more than wiping out the increases that had been made in prior months.
"We assess Europe as the region where Saudi crude has been the least attractive relative to regional competitors recently."
Oil had also collapsed Monday, with New York crude breaching the psychological $50 mark for the first time since spring 2009. Over the day, WTI lost $2.65 and Brent shed a hefty $3.31.
"Oil prices got off to a disastrous start to the new year of trading," added Commerzbank analyst Carsten Fritsch.
"The price slide is continuing (on Tuesday with) a plentiful oil supply still putting pressure on prices."
This week's price slide also followed indications of rising output from producers Russia and Iraq at a time when forecasters have trimmed their demand projections due to weak global economic growth.
A long rally in the greenback, which gained 11 percent last year against a basket of major currencies, has also weighed on the dollar-priced oil market by making crude more expensive for buyers using weaker units.
The euro hit a nine-year dollar low Monday on expectations of quantitative easing stimulus from the European Central Bank. Traders fretted also over the potential exit of Greece from the eurozone.
- Oil down 55% since June -
Oil has shed 55 percent since June on demand worries and a decision by the Organization of the Petroleum Exporting Countries (OPEC) not to cut output in response to lower prices and oversupply.
OPEC decided in November to keep its oil output ceiling at 30 million barrels per day (mbpd) despite ample global supplies, in a move analysts say is aimed at stifling competition from new market players with higher costs -- in particular North American shale oil producers.
Some investors were now betting on oil sliding as low as $20 per barrel, according to Saltvedt.
"Before we see any real cuts in the US shale production, we expect the market and oil prices will continue to be under pressure," she said.
Saudi Arabia recently insisted that OPEC would not cut production -- even if prices drop to $20. The 12-nation oil-producing group pumps about 30 percent of global crude.