Oil pares early gains as Saudi output remains near record high
Oil prices eased from early highs to under $64 a barrel on Monday after Saudi Arabian Oil Minister Ali al-Naimi said production in the world’s biggest crude exporter would stay near record peaks around 10 million barrels per day (bpd) in April.
Brent crude LCOc1 was trading up 23 cents at $63.70 by 4.32 a.m. EDT, down from an intraday peak of $64.34. U.S. crude for May delivery CLc1 was up 37 cents at $56.11 a barrel, down from an earlier high of $56.65.
“I have said many times we will always be happy to supply to our customers with what they want. Now they want 10 million,” Naimi told Reuters on Monday in South Korea’s capital Seoul, where he is due to attend a board meeting of the state oil firm Saudi Aramco [SDABO.UL].
Naimi earlier this month said Saudi Arabia produced 10.3 million bpd of crude in March, eclipsing a previous record of 10.2 million bpd, in what is seen as a move to defend market share against non-OPEC competition, including the United States.
U.S. oil drilling rigs fell for a record 19th straight week to the lowest since 2010, data from oil services firm Baker Hughes showed, which has helped lift prices from six-year lows reached in January.
Since the beginning of April, oil prices have risen around 17 percent, pushed up by reports of a possible dip in U.S. output, but Morgan Stanley warned that Saudi production could be more important than developments in the United States.
“We worry about the market’s fixation on the U.S. … OPEC production may be more important as production increased 1 million barrels per day month-on-month in March. Saudi Arabia alone added the equivalent of half of Bakken (the largest U.S. shale oilfield) production in a matter of months – far beyond any U.S. slowdown,” the bank said in a note.
Other analysts also said the recent price recovery may be short-lived.
“A bottoming-out process for oil prices is likely to be tangible, in our view, only if the trajectory of demand improvement and supply adjustment holds firm momentum,” Barclays said.
“This is not the case, however, as current supply/demand dynamics … are not firmly moving in the direction to tighten market balances in Q2,” it added.