NEW YORK Oil prices tumbled 4 percent on Tuesday after Saudi Oil Minister Ali Al-Naimi ruled out production cuts, and extended losses after settlement when a U.S. industry trade group API said domestic crude stockpiles swelled by more than twice what analysts had expected.
Crude slid as Al-Naimi, at a conference in Houston, restated the kingdom's rationale for maintaining output was that demand would absorb excess crude that has crushed prices over the past 20 months.
Big oil exporters Saudi Arabia and Russia have proposed to freeze output at January levels, which were near record highs, but only if other producers also do the same.
More meetings on the potential freezes will be held in March, al-Naimi told the IHS CERAweek conference in Houston.
An estimated 1 million to 2 million barrels of oil are being produced daily in excess of demand, and analysts and traders remained skeptical that the freeze will erase the big global supply glut.
Benchmark Brent crude futures LCOc1 settled down $1.42, or 4 percent, at $33.27 a barrel, while U.S. crude futures CLc1 fell $1.52, or 4.6 percent, to $31.87 a barrel.
The American Petroleum Institute (API) said crude inventories rose 7.1 million barrels in the week to Feb. 19 to 506.2 million, far exceeding analysts' expectations for an increase of 3.4 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 307,000 barrels, API said. The U.S. Energy Information Administration will report official inventory data on Wednesday morning. [EIA/S]
After the API report, Brent sank further to $32.92 at 4:47 EST, and U.S. crude fell to $31.30 a barrel.
"Saudi Arabia is going to continue pumping - that's the bottom line," said Tariq Zahir, managing member of Tyche Capital Advisors in Laurel Hollow, New York. "The level of trust is not there to implement cuts.".
"If they freeze production at January levels when you're already oversupplied by around a million barrels per day it just prolongs that situation of oversupply," said Energy Aspects analyst Dominic Haywood.
Also, Iran, now free of Western sanctions that hurt its crude trade, is seen as unlikely to agree to an output cap. According to a report from Iran's student news agency ISNA, the country's oil minister said the production freeze is "laughable," because it does not allow Iran to regain its production share.
The oil market remained bearish on the first day of trading for the April U.S. crude futures contract.
Investment bank Jefferies expects OPEC output to hit 32.6 million barrels per day (bpd) in the second quarter, including higher Iranian output, with markets starting to rebalance by the third quarter as production outside OPEC falls by 800,000 bpd this year.
If U.S. crude futures drop below $31.30 a barrel, there may another downward leg, said Zahir, adding that crude stockpiles are expected to build as refineries shut for spring maintenance.
(Additional reporting by Sarah McFarlane in London and Henning Gloystein in Singapore; Editing by Marguerita Choy and Jonathan Oatis)
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Updated Date: Feb 24, 2016 04:30 AM