Crude falls off highs as Saudi supply worries ease

02 March 2012 10:08  [Source: ICIS news]

By James Dennis

SINGAPORE (ICIS)--Brent crude futures fell more than $1/bbl on Friday, after hitting their highest level since July 2008 during the previous session, as concerns over Saudi Arabian supplies eased and the US Energy Secretary said there was sufficient spare capacity to cover lost Iranian exports.

At 09:35 GMT, April Brent crude on London’s ICE futures exchange was trading at $124.86/bbl, down $1.34/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $124.55/bbl, down by $1.65/bbl.

April NYMEX light sweet crude futures (WTI) were trading at $107.96/bbl, down 88 cents/bbl on the previous close. Earlier the US benchmark fell to a session low of $107.86/bbl, down by 98 cents/bbl from the previous close.

Crude prices had surged on Thursday with April ICE Brent futures climbing to an intraday high of $128.40/bbl, the highest level since 23 July 2008, amid reports from Iran of a pipeline fire in Saudi Arabia. Prices eased after Saudi Arabia denied the story.

April ICE Brent futures eventually settled at $126.20/bbl, which was still the highest settlement in 11 months.

Crude still remained buoyed by heightened tensions between the West and Iran over Tehran’s nuclear programme and supply disruptions in the North Sea and in Middle East and North Africa.

The tightening of sanctions against Iran by the US, an upcoming EU embargo on Iranian oil imports, as well as US pressure on Asian nations to cut imports of Iranian oil have raised concerns that upward pressure on oil prices is being generated by moves by buyers to secure alternative oil supplies.

The US Energy Secretary, Steven Chu, moved to calm such concerns on Thursday.

He told reporters in Washington that there was sufficient global spare capacity to cover lost Iranian exports and that the US Government will make efforts to stabilize oil prices, including possibly releasing supplies from the US Strategic Petroleum Reserves.

Iran is the second largest producer in OPEC and the world’s fourth largest oil producer with a crude output of around 3.5m bbl/day. The nation is also the third largest oil exporter, according to data from the International Energy Agency (IEA).

Iran has threatened to blockade oil shipments through the strategically important Straits of Hormuz in retaliation to sanctions and restrictions on its oil exports.

Oil shipments from Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Iran totalling around 17m bbl/day pass through the Straits of Hormuz, this volume represents 35% of all seaborne traded oil and 20% of oil traded worldwide.

Further supply tightness has been generated by disruption to North Sea supplies as well as lost exports, which total more than 500,000 bbl/day, from other producers in the Middle East and North Africa such as South Sudan, Yemen, and Syria amid ongoing unrest in those regions.

By: James Dennis
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