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Brent and US WTI crude oil prices fell to their lowest in about six years on Tuesday as the United Arab Emirates, a major Organization of the Petroleum Exporting Countries (OPEC) producer, stood by the group's decision not to cut output to tackle a glut in the market.
Oil prices have fallen 60 per cent from their peak levels in June 2014, driven down by rising production, particularly of US shale oil, and weaker-than-expected demand in Europe and Asia.
Rather than cutting output to try to balance the market, OPEC producers are offering discounts to customers in an attempt to defend market share.
In India, the Nifty edged lower, snapping a three-day winning streak, dragged down by energy stocks such as Oil and Natural Gas Corporation (ONGC) tracking the fall in crude prices. Profit-booking hit some recent outperformers. However, the losses were limited, as interest rate-sensitive stocks gained after better-than-expected retail inflation data for December led to hope the central bank would cut rates in February. The BSE Sensex closed down 0.58 per cent at 27,425.73, while the broader Nifty ended 0.28 per cent lower at 8,299.40.
At 10:32 GMT, February Brent crude was down $1.06 at $46.37 a barrel, after falling to $45.23, the lowest since March 2009. US crude for February was down $1.15 at $44.92 a barrel, following an intra-day low of $44.21.
"The market is in a bit of a panic now and the momentum is really quite negative. We haven't seen any action or comment that could reduce this aggressive selling," said Ole Hansen, senior commodity strategist at Saxo Bank.
On Tuesday, UAE oil minister Suhail bin Mohammed al-Mazroui said OPEC's decision in November not to cut output had been the right one. "The strategy will not change," he said. By not reducing output, "we are telling the market and other producers they need to be rational".
Such has been the fall in oil prices that the front-month February contract is now trading at about $7 below the July contract, encouraging traders to hire tankers to store oil at sea. "Once floating storage starts, there is very little support on the downside for Brent spreads," analysts at Energy Aspects said in a note.
Storage plays work when traders can buy cheap oil to sell at a higher price in the future. As demand remains weak, deflationary pressures are beginning to build in both Asian and European economies. In December, inflation in the UK dipped to a 14-year low.
The downward pressure on oil prices is such that even record Chinese crude imports for December --- about seven million barrels a day --- could not lift the market for long.
Banks have slashed their oil price outlooks, with analysts at Goldman Sachs cutting their average forecast for Brent in 2015 from $83.75 a barrel to $50.4.
