Oil price slide as Saudi downplays supply fears

8th March 2011, Comments 0 comments

World oil prices slid Tuesday as Saudi Oil Minister Ali Naimi said the amount of crude available on the world market was "very adequate" amid fears the Libya crisis could cause a supply shortage.

New York's main contract, light sweet crude for delivery in April, shed $1.12 to $104.32 a barrel, one day after soaring to $106.95 -- the highest level for 2.5 years.

In late London trade Tuesday, Brent North Sea crude for April was down $2.23 to $112.81.

Naimi told Saudi Arabia's state SPA news agency: "Current supplies in the market are very adequate, and there is an extra output capacity that could be used if needed.

"Recent crude prices do not reflect the fundamentals of supply and demand in the oil market as much as they are caused by financial speculation and a negative and unrealistic take on supplies," he said.

Naimi added that Saudi Arabia had an extra output capacity of 3.5 million barrels per day "which could be used and help in covering any shortage".

Analysts said the dip in prices could be short-lived as cyber-activists in OPEC kingpin Saudi Arabia have called for protests Friday demanding change in the kingdom -- stoking concerns Riyadh faces a political test too.

"My only concern is that tensions are still there for other Middle East countries and any further uprisings could see oil spike further," ETX Capital trader Manoj Ladwa told AFP.

Members of the Organization of Petroleum Exporting Countries (OPEC) are holding consultations over the oil market in light of the Libyan turmoil, the Kuwaiti oil minister said on Tuesday.

"We are in consultation but have not yet decided which direction" we are heading, Sheikh Ahmad Abdullah al-Sabah told reporters when asked if OPEC was discussing whether to raise crude production.

He also denied that Kuwait, OPEC's fifth largest producer, had increased output.

The OPEC cartel pumps about 40 percent of the world's oil.

Crude oil prices had jumped on Monday as traders fretted about escalating clashes in Libya between forces loyal to Kadhafi and rebels seeking to end his four-decade rule.

Rebels on Tuesday said they rejected a mediator's offer of talks with Kadhafi and demanded that he leave the country. Tripoli meanwhile dismissed as "rubbish" any suggestion of an approach from the Libyan leader.

"Along with talk of ... Kadhafi looking for a safe exit, crude oil has retraced some of its recent gains," trader Ladwa said.

Oil prices also weakened on Tuesday as the United States refused to rule out tapping its oil reserves to tackle high oil prices.

White House chief of staff William Daley said Sunday that the US had not ruled out tapping its strategic oil reserves to help dampen the higher cost of oil.


© 2011 AFP

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