London: Oil prices fell on Thursday after a delegate from the Organization of the Petroleum Exporting Countries (Opec) said the cartel was considering an increase in its supply target in a bid to temper prices.
Opec, which pumps more than a third of the world’s oil, may raise the target by as much as 1.5 million barrels per day when ministers meet on 8 June, the delegate said.
“There is a need for an increase to replace the loss from Libya,” the delegate said. “Oil prices are too high; $100 oil is scaring people.” By 1:56pm, Brent crude futures fell 39 cents to $114.14 a barrel, while US oil futures were 58 cents down to $99.71 a barrel.
“The markets have not reacted much to the announcement, but we suspect that additional downward pressure could materialize if in fact this turns out to be the case,” MF Global analysts said in a note.
“We still have a hard time seeing how commodity prices could move higher over the course of June given the fact that economic growth is now approaching ‘stall speed´, particularly here in the US,” MF added.
Equity markets and the dollar took a knock after US jobs and factory output data added to concerns that US economic recovery is running out of steam, leading economists to slash their forecasts for Friday’s non-farm payrolls report.
Factory growth around the world weakened last month, surveys from Europe to Asia showed.
“It is persistently bearish macro numbers (including yesterday’s dissipating May PMIs in China, the US and Eurozone) that should limit gains in oil, and market participants remain reluctant to enter large trades just yet,” VTB Capital’s Andrey Kryuchenkov said Opec.
An Opec target rise of 1 million bpd would result in only a small increase in actual oil supply from the group, the delegate said. That was because part of the rise would simply absorb above-target supply that some members of the group in Opec were already pumping, the delegate added.
The 11 members of the group bound by Opec production targets pumped 26.23 million bpd in May, nearly 1.4 million bpd above their 24.84 million bpd target.
An output increase would be at odds with a Reuters poll that predicted Opec would roll over its current output agreement, untouched since a record cut in December 2008.
Iran, normally hawkish on prices, thinks preserving Opec’s production ceiling is the only way to control the oil market, the semi-official Mehr news agency quoted Iran’s OPEC governor Mohammad Ali Khatibi as saying.
CRUDE STOCKS, GLOBAL ECONOMY
Crude was also buffeted by a jump in US crude oil stockpiles of 3.5 million barrels last week, according to an American Petroleum Industry report.
The US Energy Information Administration is set to release its estimates of petroleum stocks at 1500 GMT on Thursday.
Pipeline disruptions had helped oil rally $2 on Tuesday, but TransCanada Corp said it expected to restart its 591,000 barrel per day (bpd) Keystone pipeline after the second spill in less than a month forced it to shut on Sunday.
The dollar strengthened in early trade against a basket of currencies.
On Wednesday Moody’s cut Greece’s credit rating by three notches to an extremely speculative level due to debt restructuring worries and warned that more downgrades could come, dashing speculation that any European-brokered deal to loan the country more money would come easily.