Oil fell as Saudi Arabian Oil Minister Ali al-Naimi said the kingdom can make up for any shortage in global supply, easing concern that tensions with Iran may disrupt production.
Prices dropped as much as 0.6 percent after al-Naimi said oil markets are balanced and have ample production and refining capacity. He spoke in Kuwait at the biennial International Energy Forum. The Dollar Index, which tracks the U.S. currency against six counterparts, rose to an eight-week high after the Federal Reserve raised its economic assessment yesterday.
“Saudi Arabia is continuing the talk of more production at a time when demand is weak,” said Phil Flynn, an analyst at PFGBest in Chicago. “The improvement of the U.S. economy probably means the dollar becomes a lot stronger and it’s going to weigh on oil prices.”
Crude for April delivery slid 31 cents, or 0.3 percent, to $106.40 a barrel at 9:30 a.m. on the New York Mercantile Exchange. Prices have gained 7.7 percent this year.
Brent oil for April settlement fell 20 cents to $126.02 on the London-based ICE Futures Europe exchange.
“Saudi Arabia and others remain poised to make good any shortfall, perceived or real, in crude oil supply,” al-Naimi said.
Oil has been on the rise this year as the U.S. and Europe pressed Iran to give up its nuclear program by imposing a series of economic sanctions, including a European ban on imports of Iranian crude set to start July 1.
Strait of Hormuz
Iran, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has said its nuclear program is for peaceful purposes. It threatened to close the Strait of Hormuz, the transit point for about 20 percent of globally traded oil, in reaction to the sanctions.
The U.S. has received assurances from Saudi Arabia, the United Arab Emirates and Kuwait that they would raise oil production to help offset the effect of sanctions on Iranian exports, according to participants in discussions between the U.S. and oil-producing countries.
The Dollar Index rose as much as 0.3 percent to 80.435, the strongest level since Jan. 20, after the Fed yesterday said the U.S. labor market is gathering strength and refrained from new actions to lower borrowing costs. Gains in the dollar reduce oil’s appeal as an investment alternative.
U.S. crude inventories probably increased 1.6 million in the week ended March 9 to 347.3 million, the most since Sept. 2, according to the median estimate of nine analysts surveyed by Bloomberg News. Yesterday, the industry-funded American Petroleum Institute said supplies climbed 2.78 million barrels to 349.3 million.
The Energy Department is scheduled to release its Weekly Petroleum Status Report at 10:30 a.m. in Washington.