Oil headed for the biggest annual decline since the 2008 global financial crisis as US producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share amid a supply glut.

Futures slid as much as 1.4 per cent in New York, bringing losses for 2014 to 46 per cent. US guidelines allowing overseas sales of ultralight oil without government approval may boost the country's export capacity and "throw a monkey wrench" into Saudi Arabia's plan to curb American output, according to Citigroup Inc. US crude inventories are forecast to rise to the highest level for this time of the year in three decades.

Oil's slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It's also boosted China's emergency crude reserves and helped shrink fuel subsidies in India and Indonesia. OPEC has signaled it won't cut supply to influence prices, instead preferring to defend market share amid an unprecedented U.S. shale boom. "For this year, the biggest factor driving down oil prices was U.S. shale production followed by a price war," Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone today. "The possibility of U.S. curbing output will be the only booster but nothing has been done, so we're seeing a continuation of the price decline."

West Texas Intermediate for February delivery dropped as much as 74 cents to $53.38 a barrel in electronic trading on the New York Mercantile Exchange and was at $53.51 at 3:53 p.m. Singapore time. The contract climbed 51 cents to $54.12 yesterday, gaining for the first time in four days. Total volume was about 49 per cent below the 100-day average. US Condensate Brent for February settlement fell as much as $1.03, or 1.8 per cent, to $56.87 a barrel on the London-based ICE Futures Europe exchange. Prices have decreased 48 per cent this year. The European benchmark crude traded at a premium of $3.60 to WTI, compared with $12.38 at the end of last year.

President Barack Obama's administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S. The publication of guidelines by the Commerce Department's Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws. It doesn't end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo. "While government officials have gone out of their way to indicate there is no change in policy, in practice this long- awaited move can open up the floodgates to substantial increases in exports by end-2015," Citigroup analysts led by Ed Morse in New York said in an e-mailed report. Shale Oil The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. Production accelerated to 9.14 million barrels a day through Dec. 12, the fastest rate in weekly data that started in January 1983, according to the Energy Information Administration. Crude stockpiles probably expanded by 900,000 barrels to 387.9 million in the week ended Dec. 26, based on the median estimate of nine analysts surveyed by Bloomberg News before today's report from the Energy Department's statistical arm. "What we're seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut," Andy Lipow, the president of Lipow Oil Associates LLC in Houston, said by phone. "And that of course has put pressure on prices over the last several months."

OPEC policy

Global markets are oversupplied by 2 million barrels a day, according to Qatar’s Energy Minister Mohammed Al Sada. Saudi Arabia, which is leading OPEC to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand. OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna, ignoring calls for supply reductions to support the market.

The 12-member group produced 30.56 million a day in November, exceeding its collective target for a sixth straight month, a separate Bloomberg survey of companies, producers and analysts shows. Saudi Arabia this month offered the widest discounts in more than 10 years to sell crude to Asia, a move followed by Iraq, Kuwait and Iran. That prompted speculation that Middle East producers are protecting market share amid increased shipments from Latin America, North Africa and Russia.

Economic fallout

Venezuela's President Nicolas Maduro vowed an economic "counter-offensive" to steer the OPEC nation out of recession as it struggled with the world's fastest inflation. Ecuador, which relies on crude for about a third of its revenue, may cut next year's budget by as much as $1.5 billion and seek additional financing if prices don't stabilize, the Finance Ministry has said. Oil's collapse has also threatened to push Russia, the world's second-largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998. The economy, which relies on crude sales for almost half its budget, may shrink as much as 4.7 per cent next year if oil averages $60 a barrel, according to the central bank. Russia must adapt to the reality of prices that could drop to as low as $40, President Vladimir Putin said on Dec. 18.

Hedge funds

Hedge funds and other large speculators cut net-long positions on WTI for the first time in four weeks, reducing their holdings by 5 per cent through Dec. 23, US Commodity Futures Trading Commission data showed on Tuesday. Long wagers decreased the most since August. In China, a factory gauge for December fell to a seven- month low today, adding to signs of slowing growth in the world's second-biggest oil consumer.

China

China stocks closed up more than 2 per cent on Wednesday, boosted by a late afternoon rally which helped the stock market become the best performer among major global bourses this year. The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2.2 per cent, to 3,533.71 to end up 51.7 per cent for the year.

The Shanghai Composite Index gained 2.2 per cent, to 3,234.68 points, up 52.9 per cent year to date.

Bloomberg/Reuters