Tuesday, March 20, 2012

Brent Falls Near $125 on Libya Supply, China Fuel Hike

Brent falls near $125 on Libyan supply, China fuel hike

Mon, Mar 19 2012
By Francis Kan

SINGAPORE (Reuters) - Brent crude fell towards $125 a barrel on Tuesday as global supply concerns eased and a hike in Chinese fuel prices sparked fears of lower energy demand in the world's no.2 oil consumer.

Worries about a supply disruption 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, showing top exporter Saudi Arabia boosted oil exports in January

And in a move that could dampen demand, China will raise retail gasoline and diesel prices by between 6 and 7 percent from Tuesday, marking the biggest increase in 33 months.

"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 55 cents to $125.16 a barrel by 0237 GMT, after settling 10 cents lower in the previous session.

U.S. crude was down 56 cents to $107.53. The benchmark had gained over $1 on Monday after Valero (VLO.N: Quote, Profile, Research, Stock Buzz) announced it will shut down its 235,000 barrel per day (bpd) Aruba refinery, further tightening regional supplies ahead of the U.S. summer driving season.

The April contract expires at the end of Tuesday's session. U.S. May crude was trading at $108.00, down 56 cents.

SUPPLY GROWS

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 Gaddafi, 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 program that have 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 percent surge in crude prices this year, and could take the market higher when sanctions are enforced on July 1.

Societe Generale raised its price forecasts for Brent crude oil and U.S. 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 on Monday.

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.

CHINA DEMAND

A 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 range of the rise was bigger than expected, analysts said.

The increase is not yet big enough to choke oil demand in the world's second largest oil importer, industry watchers said.

China last raised fuel prices in February, lifting gasoline and diesel rates 3 to 4 percent to record highs.

The government, worried about inflation, has often postponed raising prices in the past two years, meaning refiners often run at a loss as they are unable to pass on any increases in crude oil costs to consumers.

(Editing by Ramya Venugopal)

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