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Oil Drops From Three-Week High on Speculation of Rising Supplies

Published: March 20, 2012 | 10:28 am
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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 slipped as much as 0.9 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. Oil has climbed this year on concern that tension between Western nations and Iran may disrupt Middle East exports.

“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 98 cents to $107.11 a barrel in electronic trading on the New York Mercantile Exchange and was at $107.24 at 8:53 a.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 86 cents to $107.70 a barrel. Front-month prices are up 8.5 percent this year.

Brent oil for May settlement fell $1.04 to $124.67 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $17 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.

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.”

The industry-funded American Petroleum Institute will release its own weekly data on supply and demand levels today.

Reasonable Prices
Oil has advanced this year on concern that European Union and U.S. sanctions against Iran’s nuclear program will disrupt Mideast exports. 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.

Saudi Arabia, 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.

New York crude climbed yesterday as confidence among U.S. homebuilders in March stood at the highest level since June 2007. Bank of America Corp. raised its 2012 oil-price forecasts, projecting an economic recovery as geopolitical events constrain supplies.

businessweek

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