CRUDE oil futures swung wildly yesterday, rising to a record of almost US$140 per barrel and then tumbling as investors weighed Saudi Arabia's promise to boost output against persistent global supply concerns and economic worries.
Light, sweet crude for July delivery fell 25 cents to settle at US$134.61 a barrel on the New York Mercantile Exchange after earlier soaring to a trading record of US$139.89. Earlier, they dropped as low as US$132.84.
In London, August Brent crude futures fell 40 cents to settle at US$134.71 on the ICE Futures exchange.
With little in the way of news to explain oil's turnabout, analysts pointed to Saudi Arabia's weekend decision to boost production and to Tuesday's expiration of crude options, or agreements to buy or sell futures at higher or lower prices. Trading is often volatile in the days immediately preceding options expiration.
Top officials in Saudi Arabia, the world's largest oil producer, told UN.chief Ban Ki-moon over the weekend that it would boost oil output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day. The increases reflect Saudi concerns about soaring prices, amid criticism that the oil giant has done little to ease market concerns over supply.
The market had initially shrugged off the news, with the July contract surging as investors focused instead on the dollar's weakness. Some analysts also argued that Saudi Arabia's output boost was not enough to allay market fears.
"Saudi Arabia's proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria," said Barclays Capital analyst Kevin Norrish in a research note.
Saudi Arabia has "to increase by north of 1 million barrels per day" to have an impact on prices, "and the market doesn't think they have it," said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.
According to the International Energy Agency, OPEC spare capacity fell below 2 million barrels a day in May for the first time since 2006. The majority of that, about 1.45 million barrels a day, was in Saudi Arabia.
Earlier yesterday, prices rose as the dollar fell against the euro. Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.
Investors were also mulling the effects of an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.
Crude's strength has pinched consumers worldwide, driving retail gasoline and diesel fuel prices sharply higher. In the US record gasoline costs have taken on political overtones in a congressional and presidential election year.
In other Nymex trading, July gasoline futures fell 2.47 cents to settle at US$3.4379 a gallon, while July heating oil futures fell 0.94 cent to settle at US$3.8274 a gallon.
July natural gas futures rose 30.8 cents to settle at US$12.933 per 1,000 cubic feet.
Anadarko Petroleum Corp. said Monday that natural gas production from a project in the deep waters of the Gulf of Mexico has been restored, hitting a gross rate of about 900 million cubic feet per day. Output from the Independence Hub was halted April 8 after a pipeline leak was found.