Oil slips as Saudi reassures supply

Reuters , Monday 28 Feb 2011

Outlook for prices unclear amid mixed predictions

Oil prices fell in choppy trade on Monday as reassurances from Saudi Arabia that extra supply needs could be met were tempered by Bank of America Merrill Lynch warning that Libyan output could be reduced for months.

International Energy Agency chief economist Fatih Birol told Reuters Insider TV industry reports indicated around half of Libya's production of 1.6 million barrels per day (bpd) had been cut, although other estimates had put the figure at three-quarters.

Brent futures for April were 2 cents lower at US$112.12 a barrel by 1406 GMT. U.S. crude was down 40 cents at $97.48 a barrel. Both benchmarks posted their highest weekly close in two-and-a-half years last week.

Thorbjorn Bak Jensen of Global Risk Management said the situation in the Middle East and North Africa remained on a knife-edge and the outlook for prices was extremely unclear.

"If Saudi Arabia starts to rumble $120 per barrel is cheap. If not, and (Muammar) Gaddafi leaves and peace and quiet spread in the involved countries, $120 is expensive," he said.

The worst-case scenario is that conflict spreads to Saudi Arabia, OPEC's biggest oil producer and the only member with significant spare capacity that can be tapped quickly to deal with supply outages.

Saudi Aramco CEO Khalid al-Falih told reporters on Monday the extra supply needs caused by violent unrest in Libya had been made up.

Falih declined to give exact figures, but an industry source on Friday said the top exporter's output had risen to more than nine million barrels per day. This compared with roughly 8.3 million bpd in January, according to a Reuters survey.

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