Drop in oil prices eases supply fears
Oil dealers said the downside potential for prices would be limited by fears of security risks in the oil-rich Middle East and worries US gasoline stocks would be drained as the summer driving season picks up, despite the latest supply increase.
US light crude for July dropped 65 cents to $37.84 per barrel on Monday, more than 10% below a 21-year high of $42.45 traded last week.
London Brent crude was down 72 cents at $34.95 a barrel. The fall in prices will be welcome news for leaders of the world’s leading industrialized nations, known as the G8, who meet today in the US.
Prices dropped last week after the Organisation of the Petroleum Exporting Countries (OPEC) pledged to raise output by two million barrels per day (bpd) from July and a further 500,000 bpd from August.
Saudi Arabia, the world’s biggest exporter, and fellow OPEC member United Arab Emirates, said they would pump an extra one million bpd between them, regardless of OPEC policy.
“Saudi Arabia looks determined to soften oil prices with more oil production, said a Deutsche Bank report.
US crude stocks rose in the latest weekly data to their highest since August 2002 and gasoline stocks increased, offering some relief after the world’s biggest oil consumer entered its so-called driving season, when Americans hit the roads for vacations.
However, the data showed that gasoline stocks still remain close to four million barrels below a year earlier and stocks are below five-year averages, supporting concerns that supplies could tighten once again.
Reinforcing the worries, the US Energy Secretary Spencer Abraham urged US refineries to run at full capacity to ensure gasoline supplies.
“I made it clear to them that we wanted to see no diminishment in refining capacity during this peak summertime period,” he said on Friday after a meeting with refiners.
US gasoline prices, which reached a record high retail price last month, have become a key issue ahead of the November presidential election.
The killing of an Irish cameraman and the wounding of his British colleague by gunmen in Saudi Arabia on Sunday once again raised fears over security in the kingdom.
The attack came a week after al Qaeda militants killed 22 people, 19 of them foreigners, in the eastern oil city of Khobar. Oil hit a 21-year high following the attack.
With healthy world economic growth leading to higher than expected oil demand, some analysts fear that oil supplies will remain tight for some months to come.
Analysts say the increase in OPEC’s official supply ceiling to 25.5 million bpd from 23.5 million bpd will make little difference to actual world supplies because OPEC is already pumping more than two million bpd above its limit.
Reuters
