Oil Prices Skid as Iran Hints at Output Rise
Crude oil’s stunning climb came to at least a temporary halt Wednesday after Iran and Saudi Arabia signaled that OPEC will produce more oil soon.
April crude futures in New York slumped $2.87 to $31.26 a barrel after reaching a nine-year high of $34.37 early in trading.
The oil ministers of Saudi Arabia and Iran, the two largest producers in the Organization of Petroleum Exporting Countries, met in the Saudi capital and afterward pledged “adequate and timely oil supplies.”
Traders interpreted that to mean that Iran had ended its opposition to an increase next month and that OPEC will boost output after an agreement on production limits expires March 31.
“It’s the beginning of the end of these sky-high prices,” said Michael Fitzpatrick, a trader at Fimat USA Inc. in New York. “Prices will still be volatile and may take some time to come down, but there’s light at the end of the tunnel.”
Other analysts weren’t so sure, given the conflicting statements from OPEC ministers recently.
The yearlong limits on production by OPEC and its allies, including Mexico, were intended to trim 7% of daily world supply and to eliminate a glut that drove oil prices to a 12-year low of around $10 in December 1998.
Now, with oil prices having far exceeded levels many analysts had anticipated--in part because of the stronger global economy--OPEC is more willing to raise output because it doesn’t expect prices to fall drastically, experts said. The cartel also doesn’t want to risk slowing global economic growth, which could quickly suppress oil demand.
OPEC will meet in Vienna on March 27 to decide future production.
Saudi Arabia and Iran said in a statement that rising oil prices aren’t in the “long-term interests” of producers and that adequate supplies are needed to balance the market, Iran’s official news service reported.
The statement is “an indication they are softening their position,” said Nauman Barakat, vice president of global energy trading at ABN Amro Inc. in New York. “The probability has increased that there will be an increase [of supply] in the second quarter.”
In New York, April unleaded gasoline futures followed crude prices lower Wednesday, falling 6.7 cents to 95.2 cents a gallon.
