Saudi Arabia Admits Oil Price Pain, at Last

Saudi Arabia Admits Oil Price Pain, at LastSaudi Arabia Admits Oil Price Pain, at Last

The world's biggest oil exporter Saudi Arabia declared this week that ultra-low oil prices were "irrational", as crude hit new 12-year lows under $27 on the global supply glut.

The market's dramatic slump culminated on Wednesday with New York crude collapsing to $26.19 per barrel—a point last seen in May 2003, AFP reported.

London Brent oil also skidded to $27.10—the lowest level since November of the same year.

Prices have since recovered somewhat to sit at around $32, but traders remain on edge after another rocky week.

"The price itself is irrational," said Khalid al-Falih, chairman of state-owned oil firm Saudi Aramco, at the World Economic Forum in the Swiss ski resort of Davos on Thursday.

Oil turned higher as the Saudi official said the market had "overshot" itself, while traders also digested eurozone stimulus hopes and a weaker-than-expected increase in US oil inventories. Saudi Arabia is the biggest producer within the Organization of Petroleum Exporting Countries.

The world remains awash with oil supplies, a situation that has been fuelled by OPEC's refusal to curb crude output in order to squeeze out high-cost US shale producers.

The Saudi-driven strategy is also aimed at pressuring non-OPEC member Russia—the biggest global oil producer—and force fellow OPEC member Iran to trim output.

OPEC left its collective production ceiling unchanged, in both June and December 2015, at 30 million barrels per day. Estimated actual output stands at 32 million bpd.

So far this year, prices faced a rapid descent as concerns also snowballed over the strong dollar and weak demand in the faltering world economy, particularly in Asian powerhouse China.

In a gloomy omen this week, the world's stock markets went into meltdown—with many entering bear territory of 20% below recent peaks—as investors took flight on global economic woes and collapsing oil prices.

"Market sentiment continues to reflect concerns about supply and demand," said Accenture research specialist, Damien Cox.

The story remains dominated by the oversupply, as OPEC production continues apace and US shale output proves seemingly remarkably resilient.