Thursday May 8, 05:38 PM
Oil retreats from $123/bbl level after Opec says no shortage of supplies UPDATE
(Updates prices, adds details)
LONDON (Thomson Financial) - Oil prices dropped sharply on Thursday afternoon after Opec announced it is 'ready to act' if the market sees a need for more crude, while maintaining that there is currently no shortage of supplies despite recent record prices.
Adbullah al-Badri, the Secretary General of the Organization of the Petroleum Exporting Countries (Opec) said in a statement: 'Opec's spare capacity continues to increase, with the figure currently standing above 3 million bpd. At the same time, crude oil movements indicate that some member countries are unable to find buyers for their additional supply,' he said.
'Opec will continue to be proactive and monitor these developments closely. The Organization stands ready to act if the market shows a need for any further measures,' he added.
At 5.12 p.m., New York-traded West Texas Intermediate crude for June delivery was down $1.19 to $122.34 a barrel, having yesterday hit a record high of $123.93 a barrel.
In London, Brent crude for June delivery was down 70 cents to $121.62 a barrel having earlier touched an all-time record of $122.98.
Oil prices have hit a series of record highs in recent sessions, due to concerns over current market tightness and fears booming demand in developing nations could begin to outstrip supplies.
Goldman Sachs (NYSE: GS - news) ' prediction this week for oil prices to reach between $150 and $200 over the next two years has fanned the flames under crude's earlier rise into uncharted territory. The call came from analyst Arjun Murti, who three years ago correctly predicted oil's rise above the $100 mark when prices were almost half that price.
Rapid demand growth in developing countries like China and India has raised fears global oil production may struggle to keep up, leading to a potential short-fall of supplies.
Robin Batchelor, fund manager of BlackRock (NYSE: BLK - news) 's World Energy Fund, said yesterday that oil prices are likely to remain high well into the next decade.
'If China and India were to increase their consumption per person to current U.S. levels, these two countries alone would require 160 million barrels per day, more than twice the world's supply of oil today,' Batchelor said.
He said high oil prices were also contributing to 'resource nationalism' as oil producing countries demand a bigger share of the industry's profits, curbing access for the major oil companies and reducing investment incentives.
However, with inventories in OECD countries currently running above the five-year average, and reports some Opec members are struggling to find buyers for all their exports, some analysts see concerns over current market tightness as overstated.
Citigroup (NYSE: C - news) analyst Tim Evans said: 'In our view, speculative bubbles do occur, and the current crude oil market qualifies as one of them.'
Opec member nations are responsible for almost 40 percent of global crude oil production, with the cartel currently pumping over 32 million bpd.
Renewed weakness in the U.S. dollar today has provided some support, with prices becoming cheaper for holders of other currencies, analysts said.
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