NEW YORK (Reuters) - Oil dived more than US$4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude's four-month rout.
The abrupt acceleration of an over 26 per cent 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 US$3.85 to settle at US$85.04 a barrel after a late lurch lower knocked prices to below US$85 a barrel for the first time since 2010. It was the biggest one-day drop since 2011.
U.S. crude fell US$3.90 a barrel to settle at US$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.
Some oil traders are now looking for downside targets at US$80 or below. On Sunday, Kuwait's oil minister said that oil prices might stop falling at around US$76 or US$77 a barrel. Saudi Arabia privately told oil market participants last week that it was comfortable with lower prices, possibly down to US$80 Brent.
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.
The diminishing outlook for consumption is colliding with an unrelenting rise in U.S. shale oil, leading to a glut of crude that has knocked Brent lower since June.
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.