Oil prices fell on Tuesday after Kuwait's oil minister said OPEC was considering the first official production boost in more than two years to ease anxiety about Libya's supply disruption and the potential for other disruptions in the region.
The Organization of the Petroleum Exporting Countries has not changed its official policy, though analysts have said the producer group's output has informally risen for months and Saudi Arabia has offered to help make up for Libya's shut output, estimated at about 1 million barrels per day of its normal 1.6 million bpd.
Brent crude futures for April delivery fell $1.94 at $113.10 a barrel by 12:37 p.m. EST (1737 GMT), having fallen as low as $112.13.
U.S. crude futures for April delivery fell 55 cents to $104.89 a barrel, after posting a low of $103.33.
Brent's premium to the U.S. benchmark West Texas Intermediate crude fell $1.44 to $8.34 a barrel, down from a peak of more than $17 last week.
We are in consultations about a potential output increase, Kuwait's Sheikh Ahmad al-Abdullah al-Sabah told reporters. But he added that the group had taken no decision yet to produce above existing output targets.
Saudi oil minister Ali Al-Naimi said world oil markets were sufficiently supplied and the kingdom held 3.5 million bpd of spare production capacity to meet any shortages.
While acknowledging the discussions about production, Algeria's oil minister said he sees no physical deficits in oil markets and Iran's OPEC governor downplayed the discussions and said there was no need for an output boost as consumer worries over supply were mostly psychological.
Investment bank Goldman Sachs raised its oil price forecast and said it believed Saudi Arabia already had used up more of its surplus capacity than is widely thought.
U.S. crude prices will average $102 a barrel in 2011 because of the unrest in North Africa and the Middle East, the U.S. Energy Information Administration said, raising the forecast by $9 from its February outlook.
BATTLE FOR LIBYA
Libyan government forces attacked rebels with rockets, tanks and warplanes on western and eastern fronts, intensifying their offensive to crush the revolt against Muammar Gaddafi.
Witnesses reported at least four airstrikes by Muammar Gaddafi's forces on Ras Lanuf on Tuesday, fueling concerns the country's oil infrastructure could suffer long-term damage in the conflict.
The market is now waiting for the next piece of news to unfold, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, who said $2 moves were not surprising in such a volatile market.
A turn for the worse for the market would be oil infrastructure being hit as a result of the fighting. The demise of the current regime or a more forceful statement from OPEC followed by an increase in production would be significant too.
U.S. OIL INVENTORY REPORTS
The industry group American Petroleum Institute will issue its weekly oil inventory report at 4:30 p.m. EST on Tuesday. The EIA's report of government data follows on Wednesday, at 10:30 a.m. EST (1530 GMT).
A Reuters analyst survey on Monday yielded a forecast for crude stocks to be up slightly, with distillate and gasoline stocks expected to have fallen last week.
(Additional reporting by Nia Williams and Christopher Johnson in London and Alejandro Barbajosa in Singapore; Editing by Walter Bagley)