Oil dives $4 as demand dims, shale booms and OPEC resists cuts

NEW YORK: Oil dived more than $4 a barrel, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting US shale output left traders struggling to peg a floor for crude's four-month rout.
The abrupt acceleration of an over 26 percent slide in prices since June was triggered by three news items that epitomized the market's turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output.
Brent crude for November fell $3.85 to settle at $85.04 a barrel after a late lurch lower knocked prices to below $85 a barrel for the first time since 2010. It was the biggest one-day drop since 2011.
US crude fell $3.90 a barrel to settle at $81.84, its biggest percentage fall in about two years.
Oil is struggling to find a floor after Saudi Arabia made clear that it was focused on maintaining market share, not supporting prices with unilateral production cuts.
Other members appear to be taking a similar tack. A source familiar with oil policy in Iran, normally one of the first in OPEC to call for production cuts, followed Kuwait in saying there was no need to rein in supplies.
Some oil traders are now looking for downside targets at $80 or below.
On Sunday, Kuwait's oil minister said that oil prices might stop falling at around $76 or $77 a barrel.
Saudi Arabia privately told oil market participants last week that it was comfortable with lower prices, possibly down to $80 Brent.
"These are numbers people are beginning to work with," said Andy Lebow, Senior Vice President at Jefferies LLC. "If they're saying it's going to $80, you might as well sell it."
He also said selling by once-bullish speculative funds had added to the "fairly intense velocity" of losses on Tuesday.
The slide began early in the day after the International Energy Agency, the West's energy watchdog, cut its estimates for global oil demand growth by 250,000 barrels per day for this year and by 90,000 bpd for 2015. It said demand for OPEC oil would be 200,000 bpd lower for both years.
"Recent price drops appear both supply and demand driven," the IEA said in its monthly oil market report. "Further oil price drops would likely be needed for supply to take a hit — or for demand growth to get a lift."
The diminishing outlook for consumption is colliding with an unrelenting rise in US shale oil, leading to a glut of crude that has knocked Brent lower since June.
Losses deepened in mid-afternoon after the US Energy Information Administration projected that fast growing shale basins would increase output by some 106,000 bpd in November from a month earlier.

WEAK EUROPE WEIGHS BRENT

The IEA's supply forecast is "piling on" already weak economic data from Europe, said analyst Phil Flynn of Prices Futures Group in Chicago. "Numbers out of Europe show deflationary pressures are extending even into the UK."
Germany's economy could shrink in the third quarter, but any recession, as defined by two or more consecutive quarters of declining output, should not last long, the chief economist of think tank ZEW said.
Investors were looking ahead to weekly US data on oil and product inventories for price direction.
US commercial crude stocks likely rose last week, while refined products likely fell, according to a Reuters survey ahead of the inventory reports due out on Wednesday and Thursday, a day later than usual due to a holiday.