Oil prices dropped 10 per cent below recent record highs yesterday as rising stockpiles in the US and the promise of more OPEC oil soothed widespread worries of a summer supply crunch.
US light crude futures bottomed out at $38.31 (€31.17) a barrel, more than $4 below a record futures high of $42.45 a barrel hit midweek. Brent crude in London was down 50 cents at $35.90 a barrel.
Dealers said an increase in US oil supplies to their highest level in nearly two years and an OPEC deal to raise its output ceiling outweighed underlying fears over rapid global demand growth and turmoil in the Middle East.
"The OPEC determination to reduce prices psychologically weighs on the market," said Mr Tom Bentz, energy market analyst at BNP Paribas in New York.
The Organisation of the Petroleum Exporting Countries agreed in Beirut on Thursday to raise formal output limits by two million barrels per day (bpd) from July 1st, and another 500,000 bpd from August. OPEC members Saudi Arabia and the United Arab Emirates have said they will deliver about one million bpd of real extra oil in June, in advance of the official hike.
The cartel's plan undershot market expectations that Saudi Arabia would lead the cartel to an immediate quota increase of 2.5 million bpd, or 11 per cent, but dealers said they were convinced of the group's intentions to cool the red-hot market.
High oil prices have rippled across many sectors of the economy, sparking fears over inflation, and raising costs for airlines, manufacturers, hauliers and the average driver in the early days of the summer driving season. The losses were also supported by signals of increasing energy stockpiles in the US, the world's biggest petroleum consumer.
Oil dealers were served a sharp reminder yesterday of the risks to supply security in the Middle East. Al-Qaeda's leader in Saudi Arabia praised an Islamic militant attack in the Saudi oil city of Khobar last weekend, which killed 22 people, for its impact on crude prices, signalling that oil has become a strategic target.
