Brent crude fell towards $124 a barrel on Tuesday as signs of increased supply from Saudi Arabia and a return to pre-war exports from Libya eased pressure on the market, while a slowdown in Chinese demand and a stronger dollar also weighed.
Saudi Arabia has said it stands ready to fill in for any gap created by the loss of Iranian oil, and late on Monday said it would work to return oil prices to "fair" levels, according to a state news agency.
Supply concerns were also eased by Libya, where oil exports in April are set to exceed pre-war levels, according to a senior official at its National Oil Corporation.
"We have been seeing articles about increases in Saudi supply offsetting a reduction in Iranian oil since Friday ... I'm surprised the market hasn't reacted until now," said Tony Machacek, an oil futures broker at Jefferies Bache Ltd.
"But now combined with Libya coming back up and running and weak Chinese demand it is all contributing."
Brent crude fell $1.18 to $124.53 a barrel at 0927 GMT, while U.S. crude was down 77 cents at $107.32 a barrel.
China said on Tuesday it was raising retail gasoline and diesel prices by between 6 and 7 percent, the biggest increase in nearly three years, which analysts say could curb demand growth.
"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.
SUPPLY GROWS
Exports from Saudi Arabia rose by 143,000 barrels per day (bpd) in January, as the world's leading crude seller boosted sales to the United States. The kingdom pledged to work individually and with other Gulf countries to return oil prices to "fair" levels.
Libya is also ramping up production as it 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.
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.
"Coupled with increased production from other members, OPEC should be able to offset a complete loss of Iran's exports, but doing so would effectively push OPEC spare capacity to zero," analysts at Morgan Stanley said in a report on Tuesday.
Iran has agreed to a new round of talks with the West, but Western sanctions aimed at curtailing Tehran's nuclear ambitions have already hit oil exports.
A ban on Iranian oil set to kick-in on July 1 has already driven a 17 percent surge in crude prices this year, and could take the market higher when sanctions are enforced.
U.S. 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 on Monday.
The survey of five analysts before weekly industry and government inventory reports for the week to March 16 produced an average forecast of a 2.4-million-barrel increase.
(Source: Reuters)
