Crude Settles at Lowest since October

Volatile crude oil futures prices fell to their lowest in eight months Monday amid signs that global oil supplies are sufficient to meet demand, even as implementation of tougher sanctions on Iran draws nearer.

"There currently appears to be sufficient supply of non-Iranian oil to permit foreign countries to significantly reduce their imports of Iranian oil," the White House said in a statement Monday. Supply tightness in the oil market relaxed "somewhat" in March and April, compared to January and February. "That trend continued in May," the White House said.

Meantime, Secretary of State Hillary Clinton on Monday announced exemptions to more than half a dozen countries under tight new sanctions aimed at cutting off Iran's oil sales. India, South Korea and Turkey, among others were awarded exemptions because they "significantly reduced their volume of crude oil purchases from Iran," the Clinton statement said.

India, South Korea and Turkey were among the largest buyers of Iranian oil in 2011, according to the Energy Information Administration. In March, the U.S. granted an exemption to Japan, another major buyer of Iran's oil. The U.S. still hasn't said how it will apply sanctions to China, which received 22% of Iran's exports in the first half of 2011.

The U.S. moves come as Saudi Arabia's action to lift crude oil output to 10 million barrels a day, in a deliberate effort to reduce soaring prices, becomes the focal point of the meeting of the Organization of Petroleum Exporting Countries in Vienna on Thursday.

The U.S. news, late in the session, helped already weak prices drop their lows of the day.

Light, sweet crude oil for July delivery on the New York Mercantile Exchange settled down 1.7%, or $1.40, at $82.70 a barrel, the lowest level since Oct. 6, 2011.

July ICE Brent crude oil settled down 1.5%, or $1.47, at $98 a barrel, the lowest level since Jan. 27, 2011.

Iranian officials have criticized the Saudis overproducing and driving down prices. The Saudi increase came ahead of a European Union ban on imports of Iranian oil set to go into effect July 1.

Oil prices dropped Monday after published reports quoted Ali al-Naimi, the Saudi Arabian oil minister, saying the Saudi analysis "suggests we will need a higher [output] ceiling than currently exists," but that the Saudis will see how other OPEC members react before formulating a position.

Analysts said that was a sign that Saudis were looking to get OPEC's official endorsement on their higher output or at least an indication that they don't appear ready to cut, even as prices have slipped in recent weeks.

"If the Saudis are talking about a higher output ceiling, that's not a sign they would be reducing production," said Andy Lebow, a vice president for energy futures at Jefferies.

Mr. Lebow said he expects some of the oil-market outlooks coming out this week to revise global oil demand downward, but the weaker sentiment may already be factored into the market, given the recent sustained deep drop.

U.S. benchmark crude oil futures fell by $18 a barrel during May and were down nearly a further $4 from the end of May.

"Until we see strength in the global economy, the market's going to stay at these levels," Gene McGillian, analyst and broker at Tradition Energy said.

Mr. Naimi's comments provided a window into the thoughts of OPEC's most influential power-broker and came as other OPEC members publicly warned that the oil market is oversupplied.

Brent crude oil prices have recently dropped from $128 a barrel to around $100 following moves by Saudi Arabia to pump at 10 million barrels a day, a level that has lifted global inventories.

Saudi Arabia's "recent increase in production proved, yet again that, we stand ready to take action to ensure markets are supplied, whatever the reasons," Mr. Naimi said in remarks to Gulf Oil Review. The recent drop in prices has "acted as a type of stimulus to the European and world economy," he added.

Maria van der Hoeven, who represents consuming nations as the executive director of the International Energy Agency, said OPEC has so far had an "intelligent" answer to meet consumers' needs in light of the uncertainty over Iran. She said there isn't a need for consumer countries to release their emergency stocks into the market, because there isn't a supply shortage.

Reformulated-gasoline-blendstock futures for July settled at the lowest level since Dec. 28, falling 2.86 cents, to $2.6566 a gallon. July heating oil settled 3.64 cents, or 1.4%, lower, at $2.6357 a gallon.


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