BLBG: Oil Drops From Three-Week High on Speculation of Supply
Oil dropped from the highest price in almost three weeks in New York on signs U.S. crude supply is rising and speculation that Saudi Arabia may boost output.
Futures fell as much as 1 percent, their first decline in three days. A government report tomorrow may show that U.S. stockpiles rose to the highest level in six months last week, according to a Bloomberg News survey. Saudi Arabia’s cabinet will work with crude consumers and producers to restore “fair” prices, according to the state news agency. Prices may be boosted as much as 30 percent by a European embargo on Iranian oil to take effect in July, said Christine Lagarde, managing director of the International Monetary Fund.
“The market is currently well-supplied with oil but supply disruptions and looming supply shortage from Iran is keeping uncertainty high,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna who predicts U.S. futures will average $104 this year. “Without an intensifying Iran conflict, further price gains aren’t justified.”
Oil for April delivery slid as much as $1.12 to $106.97 a barrel in electronic trading on the New York Mercantile Exchange and was at $107.06 at 12:32 p.m. London time. It gained 1 percent to $108.09 a barrel yesterday, the highest close since March 1. The April contract expires today. The more-actively traded May future fell $1.07 to $107.49 a barrel. Front-month prices are up 8.3 percent this year.
Brent oil for May settlement fell $1.65 to $124.06 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $16.57 to New York futures for the same month.
Oil Stockpiles
U.S. crude inventories probably rose 2.1 million barrels last week as refineries idled units and imports from Canada increased, according to the median of six analyst estimates in a Bloomberg News survey, before the Energy Department report. That would be the fifth weekly gain. The industry-funded American Petroleum Institute will release its own weekly data on supply and demand levels today.
U.S. stockpiles and increasing Saudi output are a “buffer against the supply concerns from Iran,” said David Lennox, an analyst at Fat Prophets in Sydney who estimates New York crude would be below $100 a barrel without the threat to output from the Persian Gulf. “Supply shock concerns are still priced in.”
Iran Dispute
Lagarde said in New Delhi today that a major disruption of oil supplies as a result of the dispute with Iran may drive prices up 20 to 30 percent. Any sudden price increase will hurt global growth, the IMF director said.
Societe Generale SA raised its forecast for Brent oil prices in 2012 by 15 percent to $127 a barrel as spare production capacity in the Organization of Petroleum Exporting Countries shrinks, according to a report dated yesterday.
Iranian supplies will be cut by about 600,000 to 800,000 barrels a day as a result of a European embargo on Iran due to take effect in July and co-ordinated measures by the U.S., Mike Wittner, head of oil market research, said in the report.
Saudi Arabia boosted its output in January to the second- highest level since at least 1980, according to the Joint Organization Data Initiative. Some importers are seeking substitutes for crude they normally buy from Iran, the head of research for Riyadh-based Jadwa Investment Co. said.
The kingdom, the world’s biggest crude exporter, seeks prices that are reasonable for consumers, producers and the oil industry, the cabinet said after its weekly meeting, according to a statement carried by the official Saudi Press Agency. It didn’t mention any figure.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
