U.S. crude tumbled 10 percent in its biggest one-day drop in more than five years on Friday, and benchmark Brent broke below $70 a barrel, as OPEC's decision not to cut output sent oil traders and analysts scurrying to find a new trading floor.
"I see little reason to buy oil now. I think people are either going to drive it down further or just let the market collapse," said Tariq Zahir, managing member at Tyche Capital Advisors in Hollow Way, New York.
U.S. West Texas Intermediate (WTI) light crude (WTI) settled down $7.54 at $66.15 a barrel, and fell further post-settlement, reaching a four-year low of $65.69. The last time the market lost 10 percent in a day was in March 2009.
North Sea Brent LCOc1 finished down $2.43, or 3.3 percent, at $70.15. It fell to as low as $69.78 on the day, a bottom since May 2010. Brent also finished down 18 percent for November for a fifth straight month of declines, or the longest losing streak since the 2008-2009 financial crisis.
Since June, Brent has given up about 40 percent of its value, falling from above $115, as increasing U.S. shale oil output helped create a glut amid sluggish global growth.
Friday's selloff culminated a stunning 24 hours on global crude markets, in near free fall after Saudi Arabia blocked calls from poorer members of the Organization of the Petroleum Exporting Countries to reduce production.
With U.S. markets officially closed for Thursday's Thanksgiving holiday, WTI went down about 8 percent in electronic trading overnight. Losses resumed when the New York Mercantile Exchange reopened, with U.S. crude capitulating just before Friday's close.
The risk flight in oil extended to the stock market, with energy shares on Wall Street taking a hammering despite the broader market closing up for a sixth straight week.
Shares of shale energy firms saw outsized declines, as $70 oil was considered a level at which shale drilling became unprofitable. Denbury Resources (DNR.N), QEP Resources (QEP.N) and Newfield Exploration (NFX.N) all lost more than 15 percent.
"The message from OPEC was fairly clear - we are not hurting yet because we are the lowest cost producers," said Iain Armstrong, oil and gas analyst at wealth management firm Brewin Dolphin in London.
"It is a question of who blinks first - OPEC or the U.S. shale producers. The longer the oil price stays at these levels the greater chance a U.S. shale producer will go under. But it will take time."
Saudi Arabia's oil minister told fellow OPEC members on Thursday they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.
Traders said if U.S. crude took out the May 2010 low of $64.24, it could technically be headed for a test below $60, toward the low of $58.32 set on July 2009.
"WTI could certainly be down a couple of dollars more next week, and test newer lows from there," said John Kilduff, partner at energy hedge fund Again Capital in New York.
Shale companies aside, shares of oil major Exxon Mobil Corp (XOM.N) fell more than 4 percent to below $91, while Chevron Corp (CVX.N) lost about 5 percent to under $109.
Activity in the options on the Energy Select Sector SPDR Exchange-Traded Fund XLE.P exploded as traders who had bet on a drop in the ETF scrambled to book hefty profits after the OPEC decision.
Russia's most powerful oil official Igor Sechin said oil prices could hit $60 or below by the end of the first half of next year. Options market data show speculators betting on $65 Brent by early next year.
Goldman Sachs said $60 Brent oil was possible but not sustainable and that WTI in a $70-$75 range could prompt U.S. producers to reduce capital expenditure, or drilling. For next year, BNP Paribas cuts its Brent forecast by $20 to $77, and WTI by $18 to $70.
"The market is looking for a new paradigm, a new range to settle into. Where that is, is anybody’s guess," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.
(Additional reporting by Ahmed Aboulenein in London and Keith Wallis in Singapore; Editing by Christopher Johnson, Chizu Nomiyama and Tom Brown)
