SINGAPORE (BLOOMBERG) - Oil held losses on Tuesday (Dec 29) as Saudi Arabia announced a budget that reflects scaled-back revenue expectations and lower spending as the world's biggest exporter copes with plunging prices.
Futures were little changed in New York after dropping 3.4 per cent on Monday. OPEC's most powerful member announced it will cut government spending next year as the nation's revenue is projected to drop by more than 15 percent. The kingdom's 2016 budget is probably based on crude prices of about US$29 a barrel, according Riyadh-based Jadwa Investment Co. US inventories declined 2.25 million barrels last week, according to a Bloomberg survey of analysts before government data Wednesday.
The global glut that's sent West Texas Intermediate crude toward its second yearly decline may deepen after the Organization of Petroleum Exporting Countries (Opec) effectively abandoned output limits this month. Brent, the benchmark for more than half the world's oil, is poised to end 2015 with the lowest annual average price in 11 years, hurting energy- exporting countries and companies.
"The budget situation is a recognition that changes in the dynamics of the oil market had an impact on" Saudi Arabia, Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. "What's clearly been demonstrated in the past year is that if there's oversupply, there's downward pressure on prices."
WTI for February delivery was at US$36.77 a barrel, down 4 cents, on the New York Mercantile Exchange at 11:41 am in Seoul. Prices dropped US$1.29 to US$36.81 on Monday. The volume of all New York oil futures traded was 71 per cent below the 100-day average.
Brent for February settlement gained 2 cents to US$36.64 a barrel on the London-based ICE Futures Europe exchange. The contract dropped US$1.27, or 3.4 per cent, to close Monday at $36.62. The European benchmark crude traded at a 13-cent discount to WTI.
Saudi Arabia reduced energy subsidies and allocated the biggest part of government spending next year to defense and security. Oil sales will make up about 70 per cent of the country's budget next year, said John Sfakianakis, a Riyadh- based economist at Ashmore Group Plc and a former adviser to the government.
Iran has completed a 'significant step' in fulfilling its nuclear commitments, according to US Secretary of State John Kerry. As the Islamic Republic prepares to add more supply to the existing glut, hedge funds reduced bets on rising prices to a three-month low and kept bearish wagers near a record high in the week ended Dec 22, data from the US Commodity Futures Trading Commission show.