Crude Oil Futures Decline as Saudi Arabia Says Market Is 'Oversupplied'

Oil fell for the first time in four days in New York after Saudi Arabia, the world’s biggest crude exporter, said the global market has enough supplies to meet demand.

Futures plunged 2.3 percent a day after Saudi Arabian Oil Minister Ali al-Naimi said that the market is “oversupplied.” China, the world’s fastest-growing oil consumer, increased banks’ reserve requirements to cool inflation, a sign that fuel demand growth may slow.

“The Saudis are saying the markets are well-supplied if not oversupplied,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The fact that the Chinese are taking measures because their economy is so strong seems to be taking air out of the market.”

Crude oil for May delivery slid $2.54 to settle at $107.12 a barrel on the New York Mercantile Exchange. Prices have risen 29 percent in the past year.

Brent crude oil for June settlement dropped $1.84, or 1.5 percent, to $121.61 a barrel on the London-based ICE Futures Europe exchange.

Saudi Arabia has said it will make up for any production lost as a result of the conflict in Libya, which erupted in mid- February. The kingdom cut production to 8.29 million barrels a day in March after boosting output to 9.13 million in February, al-Naimi said, and production in April will be “a little higher” than in March.

’Trickle’ From Libya

The International Energy Agency has estimated Libyan production dropped to a “trickle” because of the armed conflict that has pitted rebels in the eastern part of the country against forces loyal to leader Muammar Qaddafi. Libya is the holder of Africa’s largest oil reserves.

“News that the Saudis are cutting supply would send us higher under normal circumstances,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Their explanation that the market is oversupplied is sending us lower.”

Unrest in Libya, Africa’s third-biggest crude producer before the conflict, is the bloodiest in a wave of uprisings that has toppled leaders in Egypt and Tunisia and spread to Algeria, Bahrain, Iran, Oman, Syria and Yemen.

The Organization of Petroleum Exporting Countries has pumped enough oil to make up for the cut in Libya’s exports, and “nobody is pushing” for the group to further boost output, Kuwaiti Oil Minister Sheikh Ahmed al-Sabah told reporters today in Kuwait.

Libyan Unrest

Rebels have struggled for weeks to take and hold cities in central Libya, which have been the focus of most of the fighting since the uprising began in February, calling for deliveries of heavy weaponry and for the coalition led by the North Atlantic Treaty Organization to increase attacks.

“Undoubtedly demand for OPEC crude ‘feels’ weak at the moment due to domestic refinery turnarounds and Japanese outages,” JPMorgan Chase & Co. analysts including Lawrence Eagles in New York wrote in a note to clients today. “There is a real danger that by responding to regional market conditions for specific crudes, OPEC is setting the stage for further global price spikes.”

U.S. oil supplies probably rose for a seventh week last week, a Bloomberg News survey showed. Inventories climbed 1.4 million barrels in the period from 359.3 million a week earlier, according to the median of eight analyst estimates. The Energy Department is scheduled to release the data at 10:30 a.m. April 20 in Washington.

Chinese Economy

Oil also fell after Chinese Central Bank Governor Zhou Xiaochuan said monetary tightening will continue for “some time.” The People’s Bank of China raised reserve ratios a half- point from April 21, pushing the requirement to a record 20.5 percent for the biggest lenders. The move came less than two weeks after an interest-rate increase.

China is the second-largest oil-consuming country after the U.S. Demand growth slowed for a second consecutive month in February, to 9.6 percent on a year-on-year basis, compared with 13 percent in January and 16 percent in December, the IEA reported last week in its monthly Oil Market Report.

Annual demand is projected to grow to 10 million barrels a day this year from 9.4 million in 2010.

Hedge funds and other large speculators reduced their bullish bets on crude oil for the first time in four weeks amid signs the oil market had risen too fast.

Net-long positions in oil declined by 23,718 futures and options combined, or 7.8 percent, to 281,579, in the seven days ended April 12, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

Oil volume in electronic trading on the Nymex was 493,314 contracts as of 3:20 p.m. in New York. Volume totaled 578,026 contracts April 15, 27 percent below the average of the past three months. Open interest was 1.55 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net.

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