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Saudis Cut Prices to Cool Oil Markets

September 07, 2004|From Reuters

LONDON — Oil prices eased Monday as top world exporter Saudi Arabia slashed prices for its westbound crude sales in an effort to shift the large volumes it is offering to cool world markets.

London Brent crude ended 61 cents lower at $40.62 a barrel. Trade was subdued, with U.S. markets closed because of the Labor Day holiday.

Prices fell as Saudi Arabia cut prices for October-loading crude to both the United States and Europe, fulfilling its pledge to give customers all the crude they want to try to cool oil prices.

Prices for heavier grades were cut particularly hard as the kingdom tries to make them more attractive for refiners that are put off by their high yield of low-value fuel oil.

The Saudi pledge has failed to bring prices down much because refiners are not keen to take heavy grades that make up most of the extra Saudi supply. They want lighter grades, which yield more high-value products such as gasoline.

Prices are more than $4 below a peak hit last month after big-money speculative funds took profits from a rally that has pushed prices 40% higher this year.

Selling was triggered in part by healthy U.S. fuel inventories in the U.S. heading into Labor Day, when summer driving demand winds down.

Rapid world demand growth and tight spare production capacity have limited the price falls. U.S. inventory data last week showing crude stocks at their lowest in five months brought prices up sharply from six-week lows.

Fear of supply disruption from major Middle East producers has also underpinned price strength.

Shipments along Iraq's northern pipeline were still halted after a fierce sabotage attack last week. Repairs to the line will take at least a week.

Sabotage has kept the pipeline, which runs from Kirkuk to the Turkish port of Ceyhan, mostly shut since the U.S.-led invasion in March 2003.

Ministers of the Organization of the Petroleum Exporting Countries are to meet Sept. 15 to set supply policy for the fourth quarter.

The 10 OPEC members with quotas are pumping about 1.8 million barrels a day above OPEC's official 26-million-barrel limit.

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