Oil falls on Saudi output hike plan

Source: Agencies  |   2008-6-18  |     ONLINE EDITION

OIL prices slipped from record highs yesterday on plans by top exporter Saudi Arabia to increase crude output to help curb soaring fuel costs.

The move by the OPEC kingpin came as American and British regulators imposed position limits on US crude contracts on the London-based ICE exchange amid concerns speculators are pushing prices above levels supported by supply and demand.

US crude settled down 60 cents at US$134.01 a barrel after hitting a record US$139.89 on Monday. London Brent crude settled 99 cents lower at US$133.72 a barrel.

United Nations chief Ban Ki-moon said over the weekend that Saudi Arabia was set to raise its oil output to 9.7 million barrels per day in July, up 550,000 bpd from May.

The plan comes ahead of a June 22 meeting between oil producing and consumer nations in Saudi Arabia as protests against high fuel costs spread across the globe.

"The Saudis seem quite willing to supply the market with more, despite their OPEC brethren's objections at a time when average gasoline prices around the country are moving beyond US$4," Mike Fitzpatrick of MF Global said in a research note.

"Under these conditions, oil looks less and less attractive."

Oil prices have jumped nearly seven-fold since 2002 as strong demand from emerging economies such as China stretches global production.

In addition, a surge in speculative buying by investors hedging against inflation and the weak dollar has helped fuel a 40 percent rise in prices in 2008 alone.

The increase in Saudi Arabian oil production, as well as the new regulatory scrutiny, could scare off some investors and bring down prices, according to analysts.

Before the Saudi plan, members of the Organization of Petroleum Exporting Countries had insisted that oil's record rise this year was driven by speculation.