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Oil Near Three-Month Low; Al-Naimi Says Prices Too High

08 May 2012

Oil fell for a fifth day after Saudi Arabia’s Oil Minister Ali al-Naimi said prices are too high and a survey signaled that inventories rose to the most in more than 21 years in the U.S., the world’s biggest crude consumer.

West Texas Intermediate futures in New York dropped as much as 1.3 percent after closing at a three-month low yesterday. Crude prices are “still a little bit high,” al-Naimi said in Tokyo today. U.S. stockpiles climbed 1.9 million barrels to 377.8 million last week, according to a Bloomberg News survey before tomorrow’s Energy Department report. Crude’s 14-day relative strength index slipped, suggesting that further declines may not be sustained.

“We’ve seen a fairly significant inventory build-up,” Ric Spooner, a chief market analyst at CMC Markets in Sydney, said in a telephone interview today. “The recent trend of the market is obviously down and at this stage, from a technical point of view, looks to be remaining in a short-term downtrend.”

Crude for June delivery fell as much as $1.23 to $96.71 a barrel in electronic trading on the New York Mercantile Exchange and pared some losses to trade at $97.38 as of 1:01 p.m. London time. The contract slid 55 cents, or 0.6 percent, to $97.94 yesterday, the lowest close since Feb. 6. Prices are down 1.5 percent this year.

Brent oil for June settlement was at $112.39 a barrel, down 77 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.04, from $15.22 yesterday.

Spare Capacity

Saudi Arabia, the world’s biggest crude exporter, is storing as much as 80 million barrels and has 2.5 million barrels a day of spare capacity, al-Naimi said today before board meetings of Saudi Arabian Oil Co., of which he is chairman. The kingdom is pumping 10 million barrels a day, he said on April 13 in Seoul. That’s close to the fastest rate in at least 31 years, according to official data.

“If the macro sentiment stays subdued and Iranian nuclear negotiations do not derail, there is a good chance that Saudi Arabia will be able to push the OPEC basket price toward $100” by keeping production high, Bjarne Schieldrop, chief commodity analyst at SEB AB, said in a note. He forecasts Brent will average $117 a barrel this year.

The basket, a weighted average price of the main crude grades produced by Organization of Petroleum Exporting Countries, was at $110.12 yesterday, data on its website showed today. That was the least since Jan. 3.

Downward Sloping

Crude’s 14-day relative strength index was at 30.74 today after falling to 32.9 yesterday. A reading below 30 signals prices have fallen too far and further losses may not last.

Oil in New York has dropped out of a downward-sloping trend channel on the daily chart going back about 10 weeks, signaling a breach of technical support, according to data compiled by Bloomberg. The lower boundary of the channel is about $98.29 a barrel. Investors typically sell contracts when prices fall below chart-support levels.

“We’ve had large stockbuilds in the U.S. during the price correction and we’ve seen lower geopolitical risk” amid planned talks between Iran and members of the United Nations Security Council, Torbjoern Kjus, an oil analyst at DNB ASA, said by phone from Oslo. “Fundamentals have been weak for a while,” said Kjus, who forecasts Brent will average $115 in 2012.

WTI crude in New York climbed as high as $110.55 this year amid speculation that Western sanctions aimed at halting Iran’s nuclear program will disrupt Middle East shipments.

India will curtail its imports of Iranian oil by 20 percent, officials said, as U.S. Secretary of State Hillary Clinton held talks in New Delhi to enlist India’s help with sanctions aimed at pressuring Iran over its nuclear program.

Iranian Crude

Crude purchases by India, Asia’s third-biggest importer of Iranian oil, will be cut to 14 million metric tons from 17.5 million in the 12 months ending March 31, according to two Indian diplomats and two refinery officials who asked not to be identified because they weren’t authorized to speak publicly. Iranian crude would account for 7 percent of India’s imports in fiscal 2013, down from 10 percent currently, the officials said.

U.S. crude supplies probably rose last week to the highest level since September 1990, according to the median estimate of eight analysts in the Bloomberg survey. That would be the seventh weekly increase, and the longest run since April 2010.

Gasoline stockpiles probably rose 250,000 barrels last week, according to the survey. Distillate inventories, a category that includes heating oil and diesel, may have increased 750,000 barrels, the survey showed.

The Energy Department is scheduled to release its weekly data at 10:30 a.m. tomorrow in Washington. The industry-funded American Petroleum Institute will report its own data today.

U.S. gasoline prices at the pump fell below year-earlier levels for a third week as refineries returned to service following seasonal maintenance. The national average price for regular gasoline dropped 1 percent to $3.79 a gallon as of yesterday from a week earlier, the Energy Information Administration said in a report.