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Oil Drops in New York After Saudi Arabia's Al-Naimi Signals More Supplies
Grant Smith
Jan 24, 2011

Crude for delivery in March dropped for a fifth day after Saudi Arabian Oil Minister Ali al-Naimi signaled OPEC may increase supply to meet growing demand in China and India.

Prices gained earlier on forecasts that U.S. economic growth accelerated in the fourth quarter while industrial orders in the euro area increased in November. Merrill Lynch Wealth Management said oil will likely surpass $100 a barrel, while Goldman Sachs Group Inc. said the commodity may be heading toward a “structural bull market.”

Saudi Arabia won’t let prices rise too quickly, in order not to distort demand,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “As basically the only producer with spare production capacity at the moment, they are more in control of supply and prices than anybody else.”

Futures on the New York Mercantile Exchange dropped as much as 88 cents, or 1 percent, to $88.23 a barrel in electronic trading. It was at $88.86 a barrel at 1:21 p.m. in London. Brent crude for March settlement rose 25 cents to $97.85 a barrel on the London-based ICE Futures Europe exchange.

New York futures earlier gained as much as 0.6 percent. The February contract expired on Dec. 20, closing at $88.86 a barrel. Prices fell 2.7 percent last week and are up 18 percent in the past year.

Worldwide oil demand may increase in 2011 by as much as 1.8 million barrels a day, or 2 percent, Saudi Arabia’s al-Naimi said in a speech in Riyadh today. He reiterated that the Organization of Petroleum Exporting Countries’ policy is to meet any additional requirement for crude.

‘Draw on OPEC’

Goldman Sachs analysts wrote in a report today that increased supply “ultimately accelerates the draw on OPEC spare capacity.”

“The market may already have moved into the second stage of its cyclical recovery on the road to a structural bull market in oil,” analysts led by Jeff Currie in London said.

Crude will rise because of the “strong demand picture coming through,” Bill O’Neill, London-based chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, told reporters in Helsinki today.

“It will be moving through $100, staying above $100 for a time, but there is no return to $147” a barrel, O’Neill said.

U.S. Growth

Hedge-fund managers and other large speculators increased their net-long position 0.4 percent in crude contracts in the week ended Jan. 18, according to Commodity Futures Trading Commission data.

Bets that prices will rise held by the managed money category of investors, in futures and options, outnumbered short positions by 210,564 contracts, the Washington-based regulator said Jan. 21 in its weekly Commitments of Traders report.

U.S. fourth-quarter gross domestic product rose at a 3.5 percent annual pace, up from a 2.6 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before the Jan. 28 Commerce Department report.

Industrial orders in the euro area increased 1.9 percent in November from the previous month, when they gained 1.4 percent, according to a Bloomberg News survey before a report today.

http://www.bloomberg.com/news/2011-01-24/oil-drops-in-new-york-after-saudi-arabia-s-al-naimi-signals-more-supplies.html