Crude oil futures swung wildly today, rising to a record of almost $US140 per barrel and then tumbling as investors weighed Saudi Arabia's promise to boost output against persistent global supply worries.
Light, sweet crude for July delivery fell 29 cents to $US134.57 a barrel in afternoon trading on the New York Mercantile Exchange after earlier soaring to a trading record of $US139.89. In London, August Brent crude futures fell 22 cents to $US134.89 on the ICE Futures exchange.
With little in the way of news to explain oil's decline, analysts pointed to Saudi Arabia's weekend decision to boost production and to tomorrow'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.
