Singapore: US crude futures fell more than $1 on Tuesday as investors reduced risk ahead of a meeting of the US Federal Reserve and Saudi Aramco’s chief executive said Saudi Arabia was not comfortable with current oil prices.
NYMEX crude for June delivery declined as much as $1.16 a barrel to $111.12, and traded at $111.54 a barrel by 12:20pm. Brent dropped 31 cents to $123.35 a barrel, after slipping to as low as $122.78.
“We are not comfortable with oil prices where they are today...I am concerned about the impact it could have on the global economy,” Khalid al-Falih, Aramco’s chief executive, told an industry gathering in Seoul.
Crude snapped three days of gains, sliding along with silver and gold, as investors became uncertain whether the US Federal Reserve would signal a change in its easy monetary policy stance after a two-day meeting of policymakers wraps up on Wednesday.
“There is some risk reduction because the market wants to watch if Bernanke will say anything about a change of stance,” Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments, said. “Any change of stance is highly unlikely.”
Participants will look to the post-meeting news conference by Fed Chairman Ben Bernanke on Wednesday - the first regularly scheduled news briefing by a Fed chief in the US central bank’s 97-year history - to see how the Fed plans to exit from its ultra-loose policy.
“The market is displaying a cautious stance as any signs of the Fed tightening dollar supply would reduce crude gains,” said Serene Lim, an analyst at ANZ.
Saudi Arabia had enough capacity to meet any spike in demand and plug short-term outages in supply and there was no tightness in global oil markets, Falih said. His comments echoed Saudi Oil Minister Ali al-Naimi who said last week that the kingdom had cut oil output in March as the market was oversupplied.
Unrest and violence in North Africa and the Middle East and strong demand growth in Asia have pushed prices to their highest since 2008, triggering a series of warnings from consumers and producers that costly oil would harm economic growth, in turn eroding fuel demand.
“They should be happy with the increases, but what Saudi Arabia is looking for is stability in prices,” Emori said. “Anything outside of a range of $90-$110 makes them uncomfortable.”
The slide in NYMEX futures may have been steeper than Brent partly because of expectations that US crude oil stockpiles were likely to have risen last week, with crude imports heftier than demand from refineries, a preliminary Reuters poll ahead of weekly inventory reports showed on Monday.
The increase follows an unexpected drawdown the week before which was the first decline in domestic crude stocks in seven weeks. The American Petroleum Institute will issue its data later in the day followed by the Energy Information Administration on Wednesday.
The strengthening of the US dollar against the euro also weighed on oil. The euro slipped after European Central Bank Governor Jean-Claude Trichet said he shared the view that a strong dollar was in the interest of United States.
Still, US oil futures have a strong support at $110 a barrel below which they are unlikely to dip, Emori said. Prices may start to recover after the Fed meet ends as the central bank is expected to stick with its current policy, which will provide “a very good trigger,” Emori said.
US oil is biased to fall to $109.98 per barrel based on its wave pattern and a bullish target at $114.90 has been aborted, according to Reuters market analyst Wang Tao. Brent may fall to $121.54 per barrel, he said.
Oil has strengthened in the past few months as protests in Libya spread to other countries in the Middle East and North Africa such as Syria and Yemen, boosting fears of further supply disruptions from the region at a time when demand from key consumers such as China and India continues to rise.
Security forces have arrested about 500 pro-democracy sympathisers across Syria after the government sent tanks to try to crush protests in the city of Deraa, the Syrian rights organisation Sawasiah said on Tuesday.
Italy, which has been playing a limited role in Nato operations in Libya, decided on Monday its air force would be allowed to bomb selected military targets in the former Italian colony.