Brent crude fell towards $125 a barrel today as global supply concerns eased and a hike in Chinese fuel prices sparked fears of lower energy demand in the world's second-largest oil consumer.
Continued fears of supply disruptions in Iran were offset by news that Libyan oil production would return to levels last seen before the civil war in February, and data the day before which showed Saudi Arabia boosted oil exports in January.
Adding to worries about potential demand destruction, China said today it was raising retail gasoline and diesel prices by between 6 and 7 per cent, the biggest increase in nearly three years.
"The move might sap demand growth. Higher prices tend to discourage wasteful consumption," said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.
However, any impact is expected to be muted as China's economy continues to grow robustly, albeit at a slower pace.
Brent crude fell 52 cents to $125.19 a barrel by 4.56am, after settling 10 cents lower in the previous session.
US crude was down 62 cents to $107.47. The benchmark had gained over $1 on Monday after Valero announced it will shut down its 235,000 barrel per day (bpd) Aruba refinery, further tightening regional supplies ahead of the US summer driving season.
The April contract expires at the end of today's session. US May crude was trading at $108.00, down 56 cents.
Libya plans to export almost 1.4 million bpd of crude oil in April, exceeding deliveries in February 2011 before the uprising that ousted Muammar Gadafy, while Saudi Arabian oil exports rose 143,000 barrels per day (bpd) in January on the month after having fallen in December.
This boost in global supply has eased concerns about the standoff between the West and Iran over Tehran's nuclear programme that has lifted oil prices this year and kept oil markets on edge.
Iran has agreed to a new round of talks with the West, but Western sanctions aimed at curtailing Tehran's nuclear ambitions have hit oil exports.
A potential loss of Iranian barrels have help underpinned a 17 per cent surge in crude prices this year, and could take the market higher when sanctions are enforced on July 1.
Société Génerale raised its price forecasts for Brent crude oil and US West Texas Intermediate crude oil for 2012 and 2013 citing supply side issues like tight crude stocks, low Opec spare capacity and strong non-Opec supply disruption.
"In addition, both actual and potential supply disruptions from Iran will be an important factor for the markets," analysts at Socgen said in a note yesterday.
The bank raised its 2012 Brent price forecast to $127.37 a barrel from $110. It also upped its WTI price to $117.15 per barrel, from $103 earlier.
The hike in China's fuel prices, its second in just over five weeks, was anticipated due to a spike in global crude prices, but the increase was bigger than expected, analysts said.
However, most said they did not expect the move would choke oil demand.
US commercial crude stockpiles are forecast to have climbed last week on higher imports and lower refinery activity, in line with seasonal patterns, a preliminary Reuters poll of analysts showed yesterday.
The survey of five analysts before weekly industry and government inventory reports for the week to March 16th produced an average forecast of a 2.4-million-barrel increase.
Reuters
