Crude futures settled sharply lower Monday, despite Saudi Aramco's decision to raise its official selling price differentials for Asian-bound crudes in December, snapping a four-month-long streak of slashing these closely watched figures.
NYMEX December crude closed down 1.76 cents at $78.78/b, a low not seen since June 2012. Front-month ICE Brent settled $1.08 lower at $$84.78/b.
NYMEX refined product futures also sold-off. December ULSD ended the session 2.1 cents lower at $2.4899/gal, while December RBOB closed down 3.02 cents at $2.1176/gal.
In New York trading, NYMEX crude and ICE Brent futures intraday prices peaked around midday, coinciding with the release of the Saudi Aramco OSPs, before falling toward the session's close.
Saudi Aramco's crude differentials have been scrutinized for signs of whether the oil giant is signaling a desire to fight for market share or cut back production in defense of higher prices.
Kyle Cooper of IAF Advisors said the Saudi Aramco announcement Monday implied a policy reversal, but yet was unable to lift crude futures higher.
"The Saudis are saying they are willing to risk lower volume, not lower prices, and that's why the drop in crude futures was so discouraging for the bulls today," he said.
"If the market cannot go up, even with this bit of news, what is it going to take?" Cooper said.
Saudi Aramco increased the OSPs for its crude lifting for December cargoes bound for Asia between $0.55-$0.95 cents/b from the November OSPs.
Though, OSPs bound for the US ex-Ras Tanura were actually reduced by $0.45-$0.50/b for crudes lifted in December.
OSPs are calculated as differentials to benchmarks.
"You've had a split between those who thought the Saudis cutting their OSPs was intended to affect upstream investment outside OPEC, especially shale producers, and those who thought this was just balancing the market, not really trying to make a major statement about long-term prices, but just responding to global economic weakness," Michael Lynch, president of Strategic Energy & Economic Research, said.
The focus on Saudi Arabia comes as concerns mount over slowing demand. Economic news Monday painted a mixed picture.
China's factory activity declined to 50.8 in October, a five-month low, down from 51.1, the National Bureau of Statistics said.
The US manufacturing sector strengthened in October, according to the Institute for Supply Management's index, which recorded a score of 59, compared with 56.6 in September. The index hit a 3.5-year high, a mark also reached in August.
Tim Evans, Citi Futures and OTC Clearing analyst, said in a client note the stronger-than-expected US performance is mostly adding strength to the US dollar rather than upward revisions to US oil demand prospects.
The US dollar index was up above 87 Monday, setting an intraday high not seen since June 2010.
