Saudi Arabia production boost sends oil lower
Published:Sunday | June 12, 2011 | 12:00 AM
Saudi Arabia is still the boss when it comes to oil. The world's biggest oil exporter plans to increase production to 10 million barrels per day, the highest level in 30 years, according to a Saudi Arabian newspaper. Analysts see this as a bold step by the Saudis to reassert their dominance over OPEC after the 12-member group this week denied its request to increase production.
"They're reminding everyone who the sheriff is in town," independent analyst Jim Ritterbusch said.
Oil prices sank 2.6 per cent Friday. Benchmark West Texas Intermediate crude for July delivery lost $2.64 to settle at US$99.29 per barrel on the New York Mercantile Exchange. That erased most of the gains that followed OPEC's meeting on Wednesday.
In London, Brent crude settled at US$118.7857 per barrel on the ICE Futures exchange.
If Saudi Arabia follows through, the country will increase production 13 per cent from May. This will add another 1.14 million barrels per day to the market, helping to close a shortfall in supply. OPEC says world demand will exceed supply by 1.45 million barrels per day in the third quarter.
The US Energy Information Administration puts the shortfall at 1.81 million barrels per day.
The move by the Saudis sent other energy prices lower as well. In Nymex trading for July contracts, heating oil gave up 3.27 cents to settle at US$3.1051 per gallon and gasolene futures lost 2.213 cents to settle at US$3.0177 per gallon.
Natural gas bucked the trend, adding 8.39 cents to settle at US$4.7576 per 1,000 cubic feet.