Benchmark U.S. oil prices dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share.

West Texas Intermediate crude slid 1.6 percent in New York. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted yesterday.

Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.

WTI for January delivery dropped 99 cents to close at $59.95 a barrel on theNew York Mercantile Exchange. It was the lowest settlement since July 14, 2009. Total volume was 14 percent above the 100-day average for the time of day. The U.S. benchmark is down 39 percent this year.

“Why should I cut production?” Al-Naimi said to reporters yesterday in Lima,Peru, where he’s attending United Nations climate talks. “This is a market and I’m selling in a market. Why should I cut?”

David Fuller's view

The Saudis are certainly managing this oil price slump with a - ‘What, me worry’ - nonchalant approach.  After all, they have the biggest cash reserves of any oil exporter, and few allies among the other producers. 

This is a survival of the fittest contest among oil exporters and a massive windfall gain for countries which import most of their oil, from the European Union to India.  Predominantly oil exporter countries are under severe pressure, reflected by their stock markets and currencies.  Saudi Arabia’s stock market reflects the strain but its currency (shown inversely) remains pegged to the US Dollar, although pressuring levels not seen since 2008 and 2009.