Oil Declines First Time in Three Days; Goldman Raises Brent Price Forecast

Oil declined for the first time in three days, retreating from a 29-month high, as members of the Organization of Petroleum Exporting Countries discussed whether to hold a special meeting on a production increase.

Crude slipped as Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting” to determine whether more output is needed. Futures trimmed earlier losses after Goldman Sachs Group Inc. and Bank of America Merrill Lynch raised their oil-price forecasts.

The market “is adjusting back to previous levels, showing increased supply is priced in,” said Alexander Ridgers, head of commodities at London-based CMC Markets. “It’s not easily swayed unless facts come to light fast.”

Oil for April delivery on the New York Mercantile Exchange fell as much as $2.11, or 2 percent, to $103.33 a barrel and was at $105.31 at 1:28 p.m. London time. The price has risen 21 percent in the past month and reached $106.95 yesterday, the highest since Sept. 26, 2008. Brent crude for April settlement was down $1.04 at $114 a barrel after falling as much as $2.25 to $112.79 on the ICE Futures Europe exchange in London.

Kuwait’s oil minister told reporters in Kuwait City today that OPEC Secretary General Abdulla El-Badri is contacting members to see whether a meeting on production levels is needed.

“I’ve talked to Abdulla El-Badri in this regard and he is calling everybody and making a consensus on whether we’ll need an OPEC meeting, an urgent meeting,” Sheikh Ahmad al-Abdullah al-Sabah said. “We have to find out at the meeting whether there is a need for an increase or not.”

Light Sweet Crude

Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to Bloomberg estimates.

Vienna-based researcher JBC Energy GmbH estimated Libya accounts for 8.8 percents of total global production of light, sweet crude, or crude oil with low density and sulfur content. This type of crude yields more lucrative fuels such as gasoline and diesel when processed.

“The loss of Libyan light, sweet crude poses a threat to profitability of Europe’s already troubled refining industry,” JBC said today in an e-mailed note. “This is due to the fact that refineries rely heavily on high-quality crudes to produce value-added products and minimize expensive processing.”

Little Supply Effect

Some OPEC members and producers outside the group have made up for the reduction in crude shipments from Libya, Qatari Energy Minister Mohammed Saleh al Sada said today.

“There was hardly any effect” on supply because of the Libyan unrest, he said at a conference in Doha.

The group’s next formal meeting is scheduled for June 8 in Vienna. Most OPEC members were already producing more than their individual quotas before the Libyan unrest.

Libya’s government denied holding talks with rebels in the North African nation, Al Arabiya television reported today, without saying where it obtained the information.

Libyan rebel fighters prepared an offensive to regain a town lost to Muammar Qaddafi’s forces as the U.S. and its allies stepped up the debate on imposing a no-fly zone that might help the insurgents win the civil war.

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, OPEC’s biggest producer, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

If the Saudi government “takes a very tough line with the demonstrators, it could produce some headline risk in the market, even if no oil production is placed at risk,” analysts led by Helima Croft at Barclays Capital said in a note.

Price Forecasts Raised

Goldman Sachs raised its second-quarter outlook for Brent crude by $4.50 to $105 a barrel, citing estimates that spare capacity in OPEC has dropped below 2 million barrels a day, according to a report dated yesterday. Bank of America Merrill Lynch increased its Brent crude price forecast for this year to $108 a barrel from $88 and for next year to $95 a barrel from $85, the bank said in a note today.

An Energy Department report tomorrow will probably show U.S. gasoline inventories dropped 2 million barrels from 234.7 million, according to the Bloomberg News survey. It would be a third week of declines.

U.S. crude stockpiles increased in six of the last seven weeks, according to government data. Inventories probably rose 1 million barrels last week from 346.4 million in the previous period, according to the survey. Five of the analysts anticipated a gain and four projected a decline.

To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net.

To contact the editor responsible for this story: Steve Voss at sev@bloomberg.net.

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