"It's both supply and demand. it's basically the perfect storm that brought oil prices down," said Fadel Gheit, Oppenheimer senior energy analyst. "You have plenty of supply which you never thought possible, and all of a sudden, demand is shrinking, China's slowing down, Europe never recovered."
He said the fact that the Saudis are willing to play hardball with prices makes it difficult for other oil-based economies like Russia.
Saudi Aramco, the state-run oil company, surprised markets Wednesday when it announced it would cut official prices for Asian customers in November. The cuts come as the Organization of Petroleum Exporting Countries was expected to be on course to cut back on production instead, to protect prices.
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Analysts say that Saudi Arabia, by instead cutting prices to defend market share, is reinforcing its role as the world's swing producer, capable of controlling the flow—and prices—better than any other single producer.
"It will not be a full-fledged price war," Gheit said. "There are always skirmishes but not a full-fledged war because OPEC really is held together by Scotch Tape," he said, adding that the organization is "incompetent" and members are "jealous" of each other. "They hate each other. At the end of the day, I think they are paying the price. They never really pay attention to any alternative for their own (oil) revenues."
He said Saudi Arabia could afford to produce at lower levels despite assumptions that it needs $100 a barrel to meet its required budget revenues.
But Commerzbank analysts said " OPEC appears to be gearing up for a price war."
In a note, they said Saudi prices are getting close to levels of the 2008-09 economic crisis. "Such measures give rise to doubts about OPEC's longstanding strategy of striving above all for price stability," they wrote. "We therefore do not expect prices to stabilize until this impression disappears and OPEC returns to coordinated production cuts."
Analyst John Kilduff of Again Capital said recent surveys show OPEC production at about 31 million barrels a day, and while the organization signaled it may cut production at its November meeting, an OPEC response would be needed to change the course for prices.
"I think we're going to see the low $80s fairly quickly from here if there's no supply response from OPEC," Kilduff said. "Peak winter demand season is upon us, and it could bail them out. Brent will likely head to the low $80s. If the winter cooperates even slightly I would look for the price action to bottom around January."
"The Saudis did cut production by about 400,000, which is token," he said.
Gene McGillian, analyst with Tradition Energy, said the next likely target for WTI is $85 a barrel, and then it's uncertain how much lower it will go. For Brent, it would be $90 a barrel. "Are these fears of slowing conditions and ample supplies going to continue to really depress the price, where we're going to have action taken on the supply side to get some supply price stability?" McGillian asked.
The U.S. reported that domestic oil production was at 8.8 million barrels a day last week, a near three-decade high. The growth in U.S. output has resulted in a displacement of African crude that had once gone to U.S. refineries and now goes to Asia.
McGillian said more speculative shorts have been moving into Brent in recent weeks. "That's one reason the spreads have come under pressure and Brent is so weak. At some point, the slide is overdone, and up until yesterday, there was a question of whether it's done. It's not done. It's still searching for a new level," he said.