US brent crude oil slipped below $123 a barrel today as fears that high prices would dampen demand.
Oil exporter Saudi Arabia reduced output by 800,000 barrels per day (bpd) to 8.292 million bpd in March from February, Saudi oil minister Ali al-Naimi said yesterday, sending the strongest signal yet that Opec will not act to rein in soaring prices.
"The market had a great run on Friday, but oil continues to underpin inflationary fears as people start to worry how high it's going to get," said Ben Le Brun, market analyst with CMC Markets in Sydney.
Oil prices fell early last week on concern that demand may be eroding under pressure from high prices, but rebounded on Friday following encouraging US economic data. Prices have retreated from a 32-month peak of $127.02 hit earlier this month.
ICE brent crude was down 49 cents at $122.99 a barrel by earlier. US crude fell 74 cents to $108.92 a barrel.
Brent may revisit a recent low at $120 per barrel, while US oil is expected to retrace to $108 per barrel, according to Reuters market analyst Wang Tao. Oil ministers from Kuwait and the United Arab Emirates echoed Mr Naimi's concerns about oversupply and said rocketing crude prices were out of the hands of Opec, which next meets in June.
Mr Naimi's words were the clearest indication yet that OPEC is unconvinced of a need for a coordinated change in supply policy despite the civil war that has slashed Libyan output and expectations Japanese demand will rise as the country scrambles to rebuild its earthquake-shattered electricity grid.
"The Saudis believe that there is a massive premium because of tensions in the Middle East and that demand is waning at these prices. We think the premium is around $15-$20 a barrel," said Mr Le Brun.
The conflict in Libya escalated over the weekend, after Libyan leader Muammar Gadafy's forces fired rockets
today at rebels stationed along the edge of Ajdabiyah, sending some residents fleeing from the eastern town, witnesses said.
The oil market is still seeking a close replacement for very high quality Libyan sweet crude oil lost due to the conflict in the North African nation, Opec secretary general Abdullah Al-Badri said today.
Refiners have shown little appetite for a replacement bend offered by Saudi Arabia to plug the gap.
"The Saudis have spare capacity but there is a quality mismatch between what refiners want and what the Saudis can provide," said Michael Lo, a Hong Kong-based analyst with Nomura International.
Reuters