Oil dips on Saudi assurances


Posted at Jun 23 2008 09:18 AM | Updated as of Jun 23 2008 05:18 PM


PERTH  - Oil was slightly lower on Monday after Saudi Arabia said it was ready to increase oil output capacity and Nigerian militants announced a unilateral ceasefire, with Middle East tensions putting a floor under the price.

At 0022 GMT U.S. light crude for August delivery was down 34 cents at $135.02 a barrel after falling as much as $1.05 at the start of electronic trade to nearly $134 a barrel.

"The market has taken profits on comments by Saudi Arabia it will raise production ... but there are many other factors at play, which has in some way offset the news from Jeddah," said Mark Pervan, a senior commodities analyst at Australia and New Zealand (ANZ) Bank in Melbourne.

Geopolitical tensions between Iran and Israel and a weak U.S. dollar were among the factors supporting oil prices, Pervan said.

Top exporter Saudi Arabia was ready to pump more than 9.7 million barrels per day (bpd) of oil for the rest of this year if there was demand and could add an extra 2.5 million bpd of capacity above a plan to reach 12.5 million bpd by the end of next year, Oil Minister Ali al-Naimi said at an emergency meeting of producing and consuming nations in Jeddah on Sunday.

The gathering of world energy powers over the weekend was an attempt to rein in runaway oil prices, which leaders see as a threat to the world economy.

Further downward pressure on prices came from Nigeria, where militants in the southern Niger Delta announced a unilateral ceasefire on Sunday after an appeal by community elders.

The militants' campaign of sabotage has cut oil output by about 40 percent in the world's eighth-largest crude exporter.

But escalating tensions between Israel and Iran continued to support prices.

Iran will give a "devastating" response to any attack on the country, its defense minister was quoted as saying on Sunday.

On Friday the New York Times quoted U.S. officials as saying Israel had carried out a large military exercise, apparently a rehearsal for a potential bombing of Iran's nuclear facilities.

Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula through which roughly 40 percent of the world's traded oil is shipped.

The price of oil, which struck a record high of $139.89 this month, has doubled over the past year, stoking inflation and triggering protests from Asia to Europe.

Demand for oil by China, India and the Middle East has been cited as a factor behind crude's sevenfold surge from $20 six years ago.

Monday's economic indicators calendar includes U.S. consumer confidence for June and the Richmond Fed's manufacturing report, both at 1400 GMT.