The kingdom 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 on Sunday, 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 U.S. 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 0641 GMT. U.S. crude fell 74 cents to $108.92 a barrel.
Brent may revisit a recent low at $120 per barrel, while U.S. 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 Naimi’s concerns about oversupply and said rocketing crude prices were out of the hands of OPEC, which next meets in June.
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 Le Brun.
The conflict in Libya escalated over the weekend, after Libyan leader Muammar Gaddafi’s forces fired rockets on Sunday 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 on Monday.
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.
CHINA RAISES BANK RESERVES
China raised banks’ required reserves on Sunday for the fourth time this year to curb inflation, but the impact on oil prices was muted as further tightening in Chinese monetary policy was widely expected, analysts said.
Stock markets in both China .SSEC and Hong Kong .HSI also took the news in their stride and were trading higher on the day after opening down.
The reserve rate rise, which followed an increase in benchmark bank interest rates on April 5, was the seventh since China stepped up efforts against inflation in October and underscored the government’s determination to keep the economy on an even keel.
The market will be closely watching a clutch of key U.S. corporate earnings during this holiday-shortened week to gauge the impact of high oil and commodities prices on the world’s biggest energy consumer.