Brent Near 4-Year Low as Iraq Follows Saudi Price Cuts

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Brent crude dropped to the lowest level in almost four years after Iraq followed Saudi Arabia and Iran in cutting prices. West Texas Intermediate’s discount to Brent narrowed.

Iraq, OPEC’s second-biggest producer, will sell its Basrah Light crude to Asia at the biggest discount since January 2009, the country’s State Oil Marketing Co., known as SOMO, said yesterday. Iran last week said it will sell oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia.

“OPEC is not ready to act and that’s making people continue to sell,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Until we see some comments out of OPEC suggesting they are going to stabilize the price, I think the market will probably keep falling.”

Brent for November settlement slid $1.32, or 1.5 percent, to end at $88.89 a barrel on the London-based ICE Futures Europe exchange, the lowest settlement since Dec. 1, 2010. The volume of all futures was 17 percent above the 100-day average. Prices are down 23 percent from this year’s highest close of $115.06 on June 19.

WTI for November delivery dropped 8 cents to $85.74 a barrel on the New York Mercantile Exchange. Volume was 8 percent above the 100-day average. The U.S. benchmark crude was at a discount of $3.15 to Brent. It closed at $4.39 on Oct. 10.

Iraq, Iran

Iraq set its November Basrah Light crude at $3.15 below the average of Oman and Dubai prices for buyers in Asia, SOMO said in an e-mailed statement. That’s the biggest discount since January 2009 and compares with $2.50 for October. It will sell the crude to Europe at $5.40 below Dated Brent, from $4.75 in October. Prices for U.S. buyers were unchanged.

State-run National Iranian Oil Co. cut its selling prices for buyers in Asia, two people with knowledge of the decision said Oct. 9. A week before, Saudi Arabia, the world’s largest oil exporter, reduced the price of Arab Light crude for Asia to the lowest since December 2008.

Middle East producers including Iran, Iraq and Kuwait almost always follow Saudi Arabia’s lead when deciding whether to raise or lower export prices. The scale of November’s cuts prompted speculation some members are ready for a price war.

Market Share

“OPEC is still giving no indication that it might take steps to shore up prices,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report. “OPEC countries appear to be more interested in defending their market shares at present than stabilizing prices.”

The Organization of Petroleum Exporting Countries must cut its output target by 500,000 barrels a day in 2015 and 2016 to balance the market, Morgan Stanley analyst Adam Longson said in an e-mailed report.

“Somebody has to cut production,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

Venezuela will seek an extraordinary OPEC meeting to address falling prices, the nation’s foreign ministry said in a Twitter post on Oct. 10. Kuwaiti Oil Minister Ali Al-Omair said many countries considered the group’s current output quota to be “reasonable and fair” and the country hasn’t received an invitation to any emergency meeting, state news agency Kuna reported yesterday.

OPEC increased output by 402,000 barrels a day in September to 30.47 million, the group’s Vienna-based secretariat said in a monthly report Oct. 10.

Crude Inventories

U.S. crude inventories probably climbed 2.5 million barrels last week to 364.2 million, according to a Bloomberg survey before an Energy Information Administration report Oct. 16.

Stockpiles jumped 5.02 million barrels in the week ended Oct. 3, the biggest gain since April, the EIA, the Energy Department’s statistical arm, said last week.

Hedge funds and other large speculators lowered net-long positions in WTI futures by 4.8 percent in the seven days ended Oct. 7, the most in five weeks, according to the Commodity Futures Trading Commission data show.

(Corrects date of EIA report in third paragraph before end.)
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