Oil at lowest in six years ahead of OPEC meeting

Oil dropped to six-year low in London on signs of discord in the Organisation of Petroleum Exporting Countries as ministers arrive in Vienna for a meeting.

A majority of OPEC members agree on an output cut, with the exception of Saudi Arabia and Gulf Arab countries, the Iranian Oil Ministry's Shana news agency said. Saudi Arabia cut pricing on January oil sales to the US, signalling the kingdom is fighting for market share. US crude supplies rose to 489.4 million barrels, the most for this time of year since 1930, government data show. The surging dollar helped spur a broad commodity slump.

"There's been an avalanche of bad news for crude oil," Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. "The Saudis are cutting prices to the US and Asia, US inventories continue to rise and the dollar is getting stronger."

Oil has slumped about 40 per cent since Saudi Arabia led OPEC's decision a year ago to maintain output and defend market share against higher-cost shale producers. Saudi Arabia will consider all issues at the Friday gathering, Oil Minister Ali al-Naimi said. Iranian Oil Minister Bijan Namdar Zanganeh sent a letter to the group calling for a cut in excess supply, causing a brief rise in the oil market Wednesday.

Brent for January settlement fell $US1.95, or 4.4 per cent, to $US42.49 a barrel on the London-based ICE Futures Europe exchange. It's the lowest close since March 2009. Futures are down more than 20 per cent from their closing high on August 31, meeting the common definition of a bear market. Total volume was 36 per cent above the 100-day average at 2.56pm in New York.

West Texas Intermediate crude for January delivery dropped $US1.91, or 4.6 per cent, to settle at $US39.94 a barrel on the New York Mercantile Exchange. It's the lowest close since August 26. The US benchmark crude closed at a $US2.55 discount to Brent.

Saudi Arabian Oil Co lowered its official selling price for all grades to the US, according to an e-mailed statement from the company Wednesday. In Asia, the discount for its Arab Light against a regional benchmark will be $US1.40 a barrel, compared with $US1.30 in December.

OPEC's 12 members have pumped more than their collective production target of 30 million barrels a day the past 18 months, data compiled by Bloomberg show. Venezuela will propose a 5 per cent production cut at this week's meeting, state newspaper Correo Del Orinoco reported, citing President Nicolas Maduro.

"The reaction to the Iranian headlines shows how nervous the oil market is," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "This confirms that there's a divide in OPEC. The majority of members are in favour of a cut, but the members in the strongest position to make a cut aren't a part of that group."

Iran plans to raise output by 500,000 barrels a day within a week of Western sanctions being removed, and by 1 million barrels within six months.

US crude supplies increased 1.18 million barrels in the week ended November 27, Energy Information Administration data show. The gain left nationwide stockpiles more than 120 million barrels above the five-year seasonal average.

Total US stockpiles of crude and fuel, including the Strategic Petroleum Reserve, rose 0.1 per cent to a record 2 billion barrels.

"This is a very bearish report," Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone. "Overall stocks grew to a record 2 billion barrels. The year-on-year and five-year-supply surpluses both grew, and refineries are operating at the highest rate since late August. It's not a pretty picture."

Refineries bolstered operating rates 2.5 per centage point to 94.5 per cent of capacity, the most since August. This is the seventh-straight gain, capping the longest string of increases since 2010.

Demand for gasoline climbed 4 per cent to 9.28 million barrels a day, EIA data show.

"Gasoline demand is the only silver lining in this report, because everything else simply sucks," Cooper said.

January gasoline futures dropped 6.99 cents, or 5.1 per cent, to close at $US1.2931 a gallon in New York. Diesel for January delivery fell 6.41 cents, or 4.7 per cent, to $US1.3049, the lowest settlement since March 2009.

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