Oil extends fall on Saudi output plan
Oil fell for a fourth day on Wednesday, as more investors appeared convinced that top exporter Saudi Arabia’s plan to boost supply could tame prices.
US crude futures for July fell 66 cents to $133.35 a barrel by 3:25 a.m. British time, taking four-day losses to over $3.30 a barrel or 2.4%. The contract briefly hit a record of nearly $140 on Monday. London Brent crude slipped 72 cents to $133.00. Oil traders initially gave a muted response to news that Saudi Arabia was poised to pump oil at its fastest rate in decades next month, but analysts said increasing evidence of more crude is gradually shifting sentiment. “I’m surprised prices didn’t fall further ... if the Saudis discount their oil significantly, I think US refiners will really start to buy and start building inventories,” said Robert Nunan, a risk manager at Mitsubishi Corp in Tokyo.
US crude oil stock data due later in the day is expected to fall by 1.5 million barrels last week, a fifth consecutive draw, a Reuters survey showed. Analysts are expecting a rise of 800,000 barrels for gasoline and 1.8 million barrels for distillates. While many analysts questioned whether the Saudis would find willing buyers for its oil at current prices, India’s Reliance Industries said on Tuesday it was already committed to buy 30% of the additional Saudi crude in July, after lifting the same proportion of extra supplies this month.
United Nations chief Ban Ki-moon said over the weekend that Saudi Arabia was set to raise its oil output to 9.7 million barrels per day in July, up 550,000 bpd from May, a move whose rationale and effect has been questioned by some OPEC members. Eyes are now on the Saudi-called emergency meeting between oil producing and consumer nations on June 22 to address the sky-high prices, which have led to protests against high fuel costs across the world.
Oil prices have jumped nearly seven-fold since 2002 as strong demand from emerging economies such as China stretches global production. A surge in speculative buying by investors hedging against inflation and the weak dollar has accelerated the rally this year, pushing prices nearly 40% higher since January. While Saudi moves to dampen markets by pumping more oil, US and British regulators unveiled a plan to slap position limits on US crude contracts on the London-based ICE exchange to rein in speculators. The combined effort among Saudi Arabia, the United States and Britain could rattle some investors and bring down prices, analysts said. But billionaire oil tycoon T. Boone Pickens played down the role of investors in crude markets on Tuesday, arguing prices were rising as world oil production peaks.
Oil’s fall was cushioned by the softening dollar, which slipped on Tuesday as US housing starts fell to a 17-year low, casting more doubts over how much the US Fed might boost interest rates in coming months. The dollar has since steadied against the yen on Wednesday. (Reuters)
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