LONDON - Oil prices dropped on Wednesday amid talk of increased Saudi Arabian supplies to help cool the market, analysts said.
Brent North Sea crude for delivery in November, the market benchmark price for oil, slid 50 cents to $111.53 a barrel in London midday deals.
New York’s main contract, light sweet crude for October shed 21 cents to $95.08 a barrel.
Prices were being “dampened above all by reports that Saudi Arabia plans to do everything in its power to ensure the fundamentally justified (Brent) oil price of $100 per barrel on the market,” said Commerzbank analyst Carsten Fritsch.
“The country has always been interested in maintaining a high but stable oil price level which will also not lastingly cool demand for oil.”
Saudi oil minister Ali al-Naimi said earlier this month that prices were too high amid fears that expensive energy would undermine attempts to boost global economic growth.
The Saudi position was rekindled on Wednesday after the Financial Times said that the world’s biggest oil exporter had been offering customers extra supplies.
But prices have in any case fallen in recent days as investors fret about tepid economic growth in the United States and mounting tensions between China and Japan, traders said.
With the euphoria from last Thursday’s Federal Reserve announcement of fresh stimulus grown cold, investors focused on the reason for central bank support, which was a slowing, sluggish US economy mired in high unemployment.
There was meanwhile a mysterious plunge for oil prices on Monday that left analysts baffled. In unusually volatile deals, Brent and WTI futures suddenly tumbled by about four dollars in intraday trade.
Some market watchers suggested that the price slump could have been the result of a so-called “fat finger” trading error. Traders had also been spooked by market rumours that US President Barack Obama’s administration would release oil from the strategic petroleum reserve (SPR) to lower prices ahead of the November 6 election.
“With Saudi Arabia making front page of the Financial Times about increasing supplies, any SPR release from the US will be seen even more as a political vote-buying decision and therefore makes a SPR release less likely,” Olivier Jakob, an analyst at Petromatrix research group, said on Wednesday.
Oil prices had surged last week to four-month highs after the Fed embarked upon a third phase of quantitative easing or QE3 to boost the US economy — which is the world’s top crude consuming nation.
But they soon reversed direction, also amid a growing dispute between China, the world’s biggest energy consumer, and Japan, the third-largest economy, over islands in the East China Sea also rattled the oil markets.“The concern for oil traders is the potential damage to Chinese-Japanese trade and its impact on oil demand,” said Phil Flynn of The Price Futures Group.
“The worry is that an escalation could weaken the demand for oil. It could lead to safe-haven buying in the dollar and bonds and cause a flight away from the euro,” he said.