New York: Crude oil tumbled the most in four weeks after al-Hayat newspaper reported Saudi Arabia will raise oil production to 10 million barrels a day next month, and on concern the global economic recovery is slowing.
Oil declined as much as 3.1% as London-based al-Hayat cited unidentified senior Organization of Petroleum Exporting Countries (Opec) and industry officials as the sources of the Saudi output plan. China reported a smaller-than-estimated trade surplus on Friday.
The expressed intent of the Saudis has been to make up for the missing Libyan barrels and to cap oil prices, said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. In addition to the Saudi news, most economic indicators have been looking terrible.
Crude oil for July delivery declined $2.63, or 2.6%, to $99.30 a barrel at 10.56am on the New York Mercantile Exchange. Prices are down 0.9% this week and are 32% higher than a year ago.
Brent crude for July delivery decreased $1.47, or 1.2%, to $118.10 per barrel on the London-based ICE Futures Europe exchange. The contract on Wednesday increased 1.5%to $119.57, the highest settlement since 4 May.
Brent, the European benchmark contract traded at a record $18.80 premium to US futures on Friday.
A rebellion against Libyan leader Muammar Qaddafi has cut production in the North African country by almost 90%, according to Bloomberg estimates.
The report comes after the 12-member Opec failed this week to agree on output in what Saudi oil minister Ali al-Naimi said was one of the worst meetings ever. Futures topped $100 per barrel after the decision and al-Naimi said Saudi Arabia was committed to supplying the needs of the market regardless of the disagreement.
Saudi Arabia will increase oil production, though it is too early to say by how much, according to a Saudi industry official with knowledge of the matter. The country is still assessing demand, the person said, declining to be identified because he isn’t authorized to speak for the government.
It’s starting to sink in that the Saudis intend to do what they said, and will increase oil production, said Rick Mueller, a principal with ESAI Energy, LLC in Wakefield, Massachusetts. This will ease any supply worries.
China and India are the world’s second and fourth biggest oil-consuming countries, responsible for 14% of global demand in 2010, according to BP Plc, which published its Statistical Review of World Energy on June 8.
The oil market is lower on the combination of a weaker stock market and the falling euro, said Peter Beutel, the president of Cameron Hanover Inc., an energy advisory company in New Canaan, Connecticut. Concerns about the economy have been sending stocks lower for most of the last week and the oil market is catching up. Bloomberg
Caroline Alexander and Anthony DiPaola in London and Wael Mahdi in Cairo contributed to this story.