Oil fell on Tuesday after touching a record near $140 the previous day, with traders caught between a weaker dollar and expectations that top exporter Saudi Arabia will ramp up output to its highest rate in decades.
US crude slipped 44 cents to $134.17 a barrel by 0634 GMT (7:34 a.m. BST) after ending 25 cents lower on Monday, as traders quickly took profit from a rally to a record $139.89 triggered by a falling dollar and the closure of a North Sea oil platform. London Brent crude fell 58 cents to $134.13 a barrel. Top exporter Saudi Arabia appears poised to ramp up production for a second month in July in an effort to shake bullish investors out of the market, but analysts and market sources said it may struggle to find willing buyers. “They can increase production, they can turn on the tap, but can they get enough traders to take it?” said Greg Smith, who manages $500 million in futures as the head of the Global Commodities fund in Australia.
Refiners in the United States and Asia said they were unlikely to buy more Saudi crude unless the kingdom began offering it at a sizeable discount. United Nations chief Ban Ki-moon said over the weekend that Saudi Arabia was set to hike its oil output to 9.7 million barrels per day in July, indicating a total 550,000 bpd or 6% increase in supply since May.
Saudi Arabia’s plans drew praise from the United States and Britain ahead of a crisis meeting of oil producers and consumers on June 22 to find a solution to record oil prices. Oil has rallied around 40% this year on a rush of speculative money seeking hedges against inflation and the weak dollar. The dollar fell against the euro and the yen on Tuesday after a media report that Federal Reserve officials believe financial markets have gone too far in their forecasts for higher US interest rates. The market will also look towards US oil inventories data due on Wednesday for direction, with US crude stocks likely to fall for the fifth time in a row last week as imports dipped, a preliminary Reuters poll showed on Monday.
On average, analysts called for a drop of 700,000 barrels for crude, and rises of 1.1 million barrels for gasoline and 1.5 million barrels for distillates. Dealers will also eye the supply situation in the North Sea, where Norwegian oil and gas producer StatoilHydro has shut down 150,000 bpd in production due to a fire at the Oseberg A platform over the weekend. StatoilHydro said it had restarted some production going through the field centre and aimed to resume the rest once it could complete repairs. It gave no timeframe. (Reuters)