Kuala Lumpur: Oil prices dropped in Asia on Monday as supply concerns eased after Saudi Arabia announced plans to boost production and Opec questioned whether crude prices can remain so high.
Midday in Singapore, light, sweet crude for July delivery dropped 85 cents to $134.01 a barrel in electronic trading on the New York Mercantile Exchange. It fell $1.88 to settle at $134.86 on Friday.
Saudi Arabia, the world’s largest oil producer, told UN chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2%, from June to July. In May, the kingdom raised production by 300,000 barrels a day, but this was ignored by the oil market partly due to strong global demand.
However, traders said concerns that sustained high prices will suppress global appetite for oil may push the Organization of Petroleum Exporting Countries, or Opec, into action to stabilize the market.
“This is not a one-way story now. The industry is becoming more jittery and beginning to respond. Saudi, and Opec generally, fear permanent demand erosion at these price levels,” said Mark Pervan, senior commodity strategist at Australia and New Zealand Bank in Melbourne, Australia.
Traders are awaiting the outcome of a 22 July meet of oil producing and consuming nations in Jeddah, called by Saudi to seek ways to tackle soaring energy prices.
The New York Times reported on Saturday, citing unnamed analysts and oil traders briefed by Saudi officials, that a production increase of about 500,000 barrels per day was to be announced following the meeting.
Crude prices have reached record highs, surpassing $139 per barrel on June 6 after surging nearly $11 in the biggest single-day price leap ever. The price of a barrel has swung back and forth in a band about $10 wide since then.
In its monthly market report, the Opec said oil’s recent volatility reconfirmed the view that “current price levels do not reflect supply and demand realities.”
The cartel cut its 2008 global demand forecast, saying it now expects demand to increase by 1.28% to an average of 86.9 million barrels daily, down from a previous forecast of 1.35%.
That downward revision follows similar moves by the US Energy Department and the International Energy Agency earlier in the week.
Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said the revised forecasts suggest global demand for oil is slowing. That trend could accelerate, he added, if prices don’t come down soon.
“It’s a sign that maybe the bull run could come to an end. You don’t want to say that for sure, but you’re starting to see some shifts,” Flynn said.
In other Nymex trading, July heating oil futures slipped by 1.63 cents to $3.8205 a gallon, and July natural gas futures fell 1 cents to $12.615 per 1,000 cubic feet. Gasoline futures settled at $3.4565, down 6.1 cents over Friday’s close.
In London, July Brent crude lost 66 cents to $134.45 on the ICE Futures exchange.