Bloomberg News

Oil Drops a Fourth Day on Naimi Comments, Iran Exemptions

June 12, 2012

Saudi Arabian Oil Minister Ali al-Naimi

Ali al-Naimi Saudi Arabia's Oil Minister. Photographer: Carlos Javier Sanchez/Bloomberg

Oil traded near an eight-month low after Saudi Arabia’s oil minister said OPEC may need a higher output limit and the U.S. issued more exemptions from sanctions on buying Iran’s crude, cutting the risk of supply disruption.

Futures slid as much as 2 percent after the Organization of Petroleum Exporting Countries said the market is “amply supplied.” The U.S. added six countries and Taiwan to its list of exemptions, saying they “significantly reduced” their purchases of Iranian crude. U.S. gasoline stockpiles probably climbed to a five-week high, a Bloomberg News survey showed.

“The comments from yesterday are surprising and suggest Saudi Arabia isn’t willing to reduce production,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by phone. “Without a production cut, there will be considerable oversupply in the market in the second half, which will put further pressure on prices.”

Oil for July delivery dropped as much as $1.63 to $81.07 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Oct. 6. The contract was at $82.56 at 1:44 p.m. London time. Prices are down 17 percent this year.

Brent oil for July settlement slipped 83 cents, or 0.9 percent, to $97.17 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate declined to $14.65 a barrel, compared with $15.30 yesterday.

OPEC Meeting

WTI extended losses after a so-called bearish engulfing pattern formed on the daily candlestick chart, a tool used by technical analysts to predict price moves, according to data compiled by Bloomberg. Crude’s 50-day moving average, at $96.42 a barrel today, erased its premium to the 200-day mean, signaling a possible “dead cross” formation. Investors typically sell contracts when a shorter moving average falls below a longer one.

Saudi Arabia’s analysis suggests OPEC needs a higher production ceiling, the Gulf Oil Review cited Ali al-Naimi as saying in a June 2 to June 3 interview. The minister, who arrived in Vienna yesterday, responded to the article by telling reporters that he said “maybe” the quota needs to be increased.

Output Ceiling

Persian Gulf Arab members of OPEC want to raise the group’s output limit by 500,000 barrels a day, a person familiar with the situation said today.

OPEC, which supplies 40 percent of the world’s crude, meets in the Austrian capital June 14 to decide on output levels for the second half of the year. Its 12 members exceeded the ceiling by 1.9 million barrels a day in April, according to the International Energy Agency. Saudi Arabia, the world’s biggest crude exporter, has pumped more than 9.5 million barrels a day since June 2011, the longest stretch for at least 11 years, data from the U.S. Energy Department show.

“Ongoing challenges to world economic recovery have led to even larger uncertainties for oil demand in the second half of this year,” OPEC said in its monthly report. Concern over Europe’s sovereign debt crisis and slowing growth in emerging markets has caused prices to drop, it said.

OPEC’s crude output fell for the first time in eight months in May as Iran, Nigeria and Iraq reduced production, it said in the report. Output dropped to 31.58 million barrels a day from 31.64 million in April, it said citing secondary sources.

“Market sentiment will continue to remain fragile while waiting for the outcome of the upcoming OPEC meeting,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London, said in an e-mail.

U.S. Exemptions

The U.S. added India, Malaysia, South Korea, South Africa, Sri Lanka, Turkey and Taiwan to the list of exemptions from sanctions, Secretary of State Hillary Clinton said yesterday in an e-mailed statement. Clinton announced in March that Japan and 10 European Union nations had qualified for an exemption for a renewable period of 180 days.

India and South Korea were the third- and fourth-largest buyers of Iran’s crude in the first half of last year, according to the U.S. Department of Energy. China, the Persian Gulf nation’s biggest customer, wasn’t exempted from the sanctions, which are targeted at curbing Iran’s nuclear program.

Countries have until June 28 to demonstrate they have “significantly reduced” purchases from the Islamic Republic, OPEC’s second-biggest producer, or their banks that settle the oil trades may be cut off from the U.S. financial system.

U.S. gasoline inventories rose 1.5 million barrels last week to 205 million, the highest level since the period ended May 4, according to the median estimate of seven analysts surveyed by Bloomberg News before an Energy Department report tomorrow. Crude stockpiles probably dropped by 1.5 million barrels, the survey showed.

The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

To contact the reporters on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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