Perth: Brent crude fell below $114 a barrel on Tuesday on expectations Opec may raise its production target this week and lingering concerns that a weak economic outlook will dent demand.
Top oil exporter Saudi Arabia and other Gulf producers, including Kuwait and the United Arab Emirates, favour a hike in output on concerns that high oil prices are limiting economic growth. Saudi Arabia is already planning to hike its own oil output by 200,000 to 300,000 barrels-per-day in June.
But delegates gathering in Vienna for the Opec meeting on Wednesday say a deal to do anything more than just close the gap between Opec’s out-of-date official production target and actual supplies could prove difficult.
“Slowly the market is turning the focus to the Opec meeting and certainly a lot of the rumours around that meeting are that Saudi Arabia are lobbying quite hard for Opec to increase their production quotas and that’s exacerbating the downside for oil,” Ben Westmore, a commodities analyst at National Australia Bank in Melbourne, said.
“There seems to be some political pressure (to increase production quotas). If they do and you have extra output coming out of those Opec countries, it is adding to already fairly abundant supply of oil. There’s no doubt that that caused some downside risks to the oil price.”
Brent crude fell 55 cents to $113.93 a barrel by 10:34am, after falling $1.36 to settle at $114.48 on Monday, its weakest close in nearly two weeks. NYMEX crude fell 57 cents to $98.44 a barrel.
Worries about the economic outlook, especially in top global oil consumer the United States, also dragged oil prices down.
“The demand side and the hangover from the weak jobs numbers out of the US (last week) have had a dampening effect on the oil price,” Westmore said.
High fuel prices and weak US economic numbers could prompt the U.S. government’s energy forecasting agency to cut its global oil demand estimate for the second month running.
But U.S. oil inventory reports from industry and government could show that stockpiles fell slightly last week, a Reuters poll of analysts on Monday showed. Gasoline and distillate stockpiles were expected to rise.
Technical charts indicated that oil prices may drop in the short term, with Brent expected to slip to $112 per barrel while US oil could fall to $97 per barrel.
But the correction in oil prices is temporary, Reuters market analyst Wang Tao said, adding that charts show US and Brent crude oil futures will fall further in the short term before resuming a long-term uptrend that could see prices revisit May and April highs by the end of 2011.
POLITICAL UPHEAVALS SUPPORT
The threat that violence in Yemen, Syria, and Libya could disrupt more oil supplies continues to support prices.
“The political situation in the Middle East and North Africa remains tense and some risk of a significant disruption to oil prices cannot be entirely discounted,” Ric Spooner, chief market analyst at CMC Markets in Sydney said.
The US called for a peaceful and orderly transition in Yemen in the absence of President Ali Abdullah Saleh, who is recovering from shrapnel wounds in Saudi Arabia.
Syrian forces fought gunmen in battles that left more than 120 members of the security forces dead, state television said in the first report of large-scale armed clashes in the revolt against President Bashar al-Assad.
In Tripoli, loud explosions shook the town in what appeared to be stepped up Nato air strikes on the Libyan capital on Tuesday morning, and rebel forces seized a town in the west, driving out Moammar Gadhafi’s forces.