BLBG:Oil Drops From Three-Week High on Speculation of Supply
Oil dropped the most in more than three months in New York as Saudi Arabia, the world’s biggest crude-exporting country, said it can boost output immediately to stave off shortages.
Futures fell 2.3 percent after Oil Minister Ali al-Naimi said in Doha, Qatar, that the kingdom has increased production and can pump 25 percent more crude if needed. A U.S. government report tomorrow will show stockpiles rose for a fifth week, according to a Bloomberg News survey.
“The Saudis are trying to talk down prices,” said Mike Wittner, head of oil market research at Societe Generale in New York. “We already knew they were increasing output, but now they are acknowledging the fact.”
Oil for April delivery fell $2.48 to settle at $105.61 a barrel on the New York Mercantile Exchange, the biggest one-day decline since Dec. 14. Futures are up 6.9 percent this year. The April contract expired today. The more actively traded May futures declined $2.49, or 2.3 percent, to $106.07 a barrel.
Prices rebounded from the close after the American Petroleum Institute reported oil supplies fell 1.37 million barrels to 347.9 million last week. The May contract was down $2.27 to $106.29 at 4:32 p.m. in electronic trading.
Brent oil for May settlement decreased $1.59, or 1.3 percent, to end the session at $124.12 a barrel on the London- based ICE Futures Europe exchange. The European benchmark contract was at a premium of $18.51 to the May West Texas Intermediate oil traded in New York.
‘No Shortage’
Saudi Arabia, OPEC’s biggest oil producer, has output capacity of 12.5 million barrels a day and will pump about 9.9 million this month and in April, al-Naimi told reporters at the Ritz Carlton hotel in Doha. The global market is oversupplied by as much as 2 million barrels a day and inventories are rising, the minister said.
“I want to assure you that there is no shortage of supply in the market,” al-Naimi said. “OPEC is supplying what it needs, we have capacity, additional reserves of 2.5 million barrels.”
Libya (OPCRLIBY) is boosting production that was disrupted last year by the rebellion against Muammar Qaddafi’s regime. The country pumped 1.125 million barrels a day last month, the most since February 2011, a Bloomberg News survey showed. Output tumbled to 45,000 barrels a day in August from 1.585 million in January 2011, the last month before the uprising.
“Saudi Arabia continues to increase production and it looks like Libyan output is approaching levels last seen before the revolt,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York.
U.S. Stockpiles
U.S. crude inventories probably rose 2.2 million barrels last week, according to the median of 11 analyst estimates in a Bloomberg News survey before tomorrow’s Energy Department report. Supplies at Cushing, Oklahoma (DOESCROK), the delivery point for the New York oil contract, have climbed to the highest level since June because of the output of crude from Canada.
“U.S. inventories continue to increase and there’s a growing awareness that production is rising,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The Naimi comments today underscore that we don’t have a physical shortage of oil in the market.”
Enterprise Products Partners LP (EPD) may expand its Seaway oil pipeline to carry more than 400,000 barrels a day from Cushing. Enterprise will open the reversed Seaway pipeline between Cushing and Houston by late May, Vice President Mark Hurley said today during a presentation to analysts. The company had previously said the pipeline would start up by June.
“The sooner that that takes place, the quicker oversupply at Cushing will drop,” Evans said. “This is bearish for the Brent-WTI spread.”
Iran Embargo
Oil prices may increase 30 percent because of a European embargo on Iranian oil set to take effect in July, Christine Lagarde, managing director of the International Monetary Fund, said in New Delhi. Any sudden price increase will hurt global growth, she said.
The Obama administration has decided to grant an exemption from new U.S. sanctions to 10 European Union countries and Japan because they have demonstrated “significant reductions” this year in their petroleum purchases from Iran.
Senator Bob Menendez, a New Jersey Democrat and co-author of a law enacted Dec. 31 that will sanction banks in countries that don’t reduce their Iranian oil purchases through Iran’s central bank, said that Secretary of State Hillary Clinton called him today to inform him of the decision.
Commodity Decline
The drop in oil prices accelerated as equities decreased. The Standard & Poor’s 500 Index fell 0.3 percent. The Standard & Poor’s GSCI Index of 24 raw materials dropped 1.5 percent.
Societe Generale raised its forecast for Brent in 2012 by 15 percent to $127 a barrel as spare capacity in the Organization of Petroleum Exporting Countries shrinks, according to a report dated yesterday.
Electronic trading volume on the Nymex was 631,149 contracts as of 4:32 p.m. in New York. Volume totaled 576,077 contracts yesterday, 8.2 percent below the three-month average. Open interest was 1.56 million.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
