scorecardresearch Skip to main content

Oil prices tumble on Saudi discount move

LONDON — Oil prices slumped to multiyear lows on Tuesday after Saudi Arabia cut the price of oil sold to the United States, a move that is shaking an already volatile market but will probably stimulate the world economy.

The 25 percent or so slide in oil prices since the summer could boost consumer spending and business investment in many economies around the world as fuel bills fall.

Not everyone’s a winner, though. Oil-producing countries such as Russia and Venezuela, which have high extraction costs and budgets that rely on assumptions of relatively high energy prices, stand to lose out. And lower prices could eventually slow the booming production in the United States, offsetting the benefit of lower energy costs for consumers and businesses.


US oil dropped another 2 percent Tuesday to $77.19, at one point falling to $75.84, the lowest level since October 2011. It was trading at $100 a barrel as recently as July. Brent, the international benchmark, declined 2.3 percent, to $82.82, having earlier fallen to $82.08, its lowest level in four years.

Adam Slater, senior economist at Oxford Economics, reckons the recent fall in oil prices, if sustained, could add around 0.4 percent to GDP in the United States in two years, and a little less in Europe.

China, which is the second-largest oil consumer and is on track to become the largest net importer of oil, could see GDP 0.8 percent higher than it otherwise would have been.

‘‘This is similar to a surprise stimulus,’’ Slater said.

Though a drop in demand is a factor in the current slump amid concerns about global growth, Slater said supply-side factors are having a much bigger impact than in 2008, when demand plummeted as the global economy tanked. The rise of fracking in the United States, the return of oil output from Iraq and Libya, and Saudi Arabia’s willingness to resist production cuts have combined to weigh on prices.


On Monday, Saudi Arabia, OPEC’s largest oil producer, cut prices for US customers. The move has been interpreted as an attempt by the country to maintain its market share in the world’s largest economy against supplies from Canada, Mexico, Venezuela, and US shale oil producers.

Phil Flynn, senior market analyst for Price Futures Group, said Saudi Arabia’s move was directly aimed at the US producers, who have boosted US oil output to the highest level in decades. As a result, US imports of crude oil from Saudi Arabia dropped to 894,000 barrels a day in August, down from 1.3 million barrels a day in the same month a year earlier.

Saudi Arabia is ‘‘threatened by US oil production, and they are acting to try to break the US producers’ back,’’ Flynn wrote in a daily newsletter to clients.

The drop in oil reverberated in the US stock market.

The Dow Jones transportation average rose to a new high of 8,870.90 in morning trading before closing at 8,798.91. Airline stocks gained; American Airlines and United Continental Holdings gained 1.7 percent. Meanwhile, major oil companies such as Exxon Mobil and Chevron fell 0.8 and 1.2 percent, respectively, while Continental Resources, which primarily operates in the United States, fell 7.5 percent.

OPEC members meet Nov. 27 in Vienna, but investors doubt the cartel will agree to reduce production quotas.