Oil fell more than half a percent to near $134 a barrel on Monday, as Saudi Arabia prepared to push production to its highest rate in decades, moving to soothe the market ahead of this weekend’s crisis meeting over record prices.
US light, sweet crude for July delivery fell 77 cents or 0.6% to $134.09 a barrel by 0209 GMT after dropping nearly $2 on Friday, when an industry newsletter reported that Saudi was poised for a big output boost next month. London Brent crude fell $1.06 to $134.05 a barrel.
At the weekend, United Nations chief Ban Ki-moon said the world’s biggest exporter was set to increase output to 9.7 million barrels per day in July, the first official indication of its second supply boost in as many months. “9.7, that is what he (Saudi Oil Minister Ali al-Naimi) said” on July output, the Abu Dhabi-based The National newspaper quoted the UN Secretary General as saying after he met with Naimi. That would be a rise of 550,000 bpd or over 6% since May and would take Saudi crude output to its highest monthly rate since August 1981, according to US government data.
Oil traders said the news could spur heavier selling during more liquid European trading hours, but losses may be checked by fears that many refiners -- particularly in Asia -- will balk at buying more of the kingdom’s heavier, hard-to-process crude. “We may see some more reaction over the course of today,” said David Moore, an analyst with Commonwealth Bank of Australia. “I think if there is to be an increase it will be helpful to the market, the question is whether it will be absorbed with increased appetite from Asia,” he said.
Saudi King Abdullah “sees that oil prices are currently abnormally high and he is willing to do all that is possible to bring prices to their appropriate levels,” state news agency SPA quoted Ban as saying after meeting the Saudi monarch. The Saudi plan comes to light a week before the kingdom hosts an unprecedented meeting of producers and consumers to tackle market instability, its latest effort to turn back a rally that has boosted prices 40% this year alone, spurring protests around the world and endangering global economic growth.
But some questioned whether Saudi oil would temper prices, which have also been buoyed by fears over whether the world can meet long-term demand for crude and the influx of investment funds seeking a hedge against the dollar and inflation. “If they want to put pressure on prices they need substantial price discounts that would encourage greater stock building,” said David Kirsch of Washington-based consultancy PFC Energy.
Saudi Arabia had pledged a month ago to increase supply by 300,000 bpd (barrel per day) this month versus May to meet demand from buyers, primarily in the United States, although most OPEC ministers have maintained that the world is not short of crude. Oil had fallen nearly $2 a barrel on Friday after industry newsletter the Middle East Economic Survey reported Riyadh was considering a sizeable output increase to near 10 million bpd.
But prices are still double what they were a year ago and have surged six-fold since 2002, and financial leaders fear the rally could worsen the US economic downturn. Saudi Arabia is the only member of OPEC with the spare capacity to boost supplies quickly and significantly. It could pump around 2 million bpd more than it does. (Reuters)