Brent crude fell more than $1 on Tuesday to below $114 after Kuwait's oil minister said OPEC is in talks to boost production for the first time in more than two years, soothing markets rattled by the Middle East unrest.
An official output increase by OPEC would signal the group's
determination to put a cap on prices and keep the global economic recovery on track after revolutions in Tunisia and Egypt and protests from Morocco to Oman sent Brent crude to almost $120 a barrel last month, the highest since 2008.
A brewing civil war in Libya has idled as much two-thirds as of the country's oil output, or 1 million barrels per day (bpd), eliciting calls from consumers for OPEC to boost production.
We are in consultations about a potential output increase, Sheikh Ahmad al-Abdullah al-Sabah told reporters, adding that there was no decision for the group to produce over quotas yet.
Brent crude for April fell $1.29 to $113.75 a barrel at 0718 GMT, down more than $6 from a February 24 peak of $119.79, the highest price since 2008, when it reached a record
There's no doubt the market is concerned about supply at the moment so any comments giving support to supply would be a trigger for profit-taking, said Mark Pervan, head of commodities research at ANZ in Melbourne.
I would still say the market is finely balanced and the news won't trigger a lot of selling in the near term.
Saudi Arabia, the world's largest oil exporter and home to most of the spare capacity held by the Organization of the Petroleum Exporting Countries, is pumping about 9 million barrels a day, almost 1 million bpd above its quota.
U.S. crude closed above $105 on Monday, its highest since September 2008. On Tuesday it was down $1.29 at $104.15.
Concern has prevailed that violence and supply disruptions may spread to other countries in the region amid the Libyan turmoil. But so far oil is flowing as usual from the world's biggest producers in the Mideast Gulf.
The massive spike that we've seen in the price of oil has literally been driven by the geopolitical concern. As soon as those short-term speculative motives are removed from the market, I expect to see a sharp drop in crude prices to below $100 and traders to focus on fundamentals again, said Matthew Lewis, an analyst at CMC Markets in Sydney.
Prices had already dropped by less than $1 a barrel before the Kuwaiti minister spoke. Two Arab newspapers and al Jazeera television said on Monday Gaddafi was looking for an agreement allowing him to step down, but there was no official confirmation of the reports.
In terms of the Libyan crisis, there is a lot of speculation that perhaps Gaddafi is looking to extradite himself. That may put an end to the crisis and the oil price would fall fairly rapidly, Lewis said.
On Tuesday, U.S. crude slid 37 cents from the 2-1/2-year peak to $105.07. The Brent/WTI spread has shrunk by more than $7 since last week's record, ending Monday at its narrowest since January.
There has been quite a large disparity between Brent and WTI, and that has come to the attention of traders as an opportunity to buy the WTI and sell the Brent on the expectation that the disparity will subside, Lewis of CMC said.
Major Libyan oil ports Ras Lanuf and Brega in the east of the country are closed as violence in the area has hampered operations at the terminals, shipping sources said on Monday.
But a coordinated release of strategic oil stocks by OECD economies is not yet needed because the oil supply disruption caused by an uprising in Libya remains limited on a global scale, the International Energy Agency (IEA) said on Monday.
The White House said on Monday the price of oil was one factor -- but not the only factor -- that would be used when determining whether the United States will tap its strategic oil reserve.
U.S. crude oil stockpiles could have risen by 300,000 barrels last week as imports likely rose, a preliminary Reuters poll ahead of weekly inventory reports showed on Monday.
The industry group American Petroleum Institute (API) will issue its weekly inventory report on Tuesday, at 2130 GMT, followed by government statistics from the U.S. Energy Information Administration on Wednesday, at 1530 GMT.
(With additional reporting by Francis Kan)