Oil dropped 1 per cent Tuesday as Saudi Arabia sought to knock back the rise in prices that has threatened the global economy, reaffirmed by the most detailed argument to date by the OPEC nation's oil minister that it was prepared to meet any supply shortfalls.
Saudi Arabian Oil Minister Ali al-Naimi said the kingdom was pumping 9.9 million barrels per day - the highest level in decades - supplying every request from customers and was willing to turn the taps to maximum capacity of 12.5 million bpd immediately if needed.
The kingdom, which has tried to calm oil markets on edge about the potential loss of Iranian supplies this year, has filled storage levels outside the country to 10 million barrels to help build a cushion for markets.
"I want to assure you that there is no shortage of supply in the market," Mr. Naimi told reporters at a media briefing in Doha, Qatar, adding supplies were now outpacing global demand by more than one million bpd.
"We are ready and willing to put more oil on the market, but you need a buyer," he said.
"From our point of view, we have had no customer not satisfied. We have satisfied every request for every customer that has come asking.
"We ask the customers, 'Do you need more?' and invariably the answer is 'No thank you.' "
The influential Saudi minister said a repeat of 2008, when oil hit a record high of $147 (U.S.) a barrel, must be avoided but that circumstances now were very different.
"It's definitely not the same. There's plenty of supply … inventories are being built," he said. Commercial inventories in countries of the Organization for Economic Co-operation and Development were likely to reach 60 days of forward cover in March, from 57 days in January.
Flows from Libya and Iraq, fellow OPEC members, were also rising, Mr. Naimi said, dismissing outages from non-OPEC producers Sudan, Yemen and Syria as "minuscule".
The Saudi minister sought to clear up what he called misunderstandings over Riyadh's spare production capacity, which now stands at 2.5 million bpd.
"There's a lack of understanding of what we do operationally," he said. "We spent a lot of money building that capacity. We finished building it in 2009, and it is there to be used."
Saudi has also filled up stockpiles inside and outside the kingdom to meet "immediate need," Mr. Naimi said, with about 10 million barrels being held in Rotterdam, Sidi Kerir and Okinawa.
U.S. and European sanctions, aimed at ending Iran's nuclear ambitions the West insists will lead to the construction of bombs, have sent oil prices up 15 per cent this year and prompted Tehran to threaten to close the Strait of Hormuz shipping lane.
Oil prices fell early in the day after Sheik Sabah al-Ahmad al-Sabah, the ruler of Kuwait, said Iranian officials had assured his country that Tehran would not close the strait, through which 35 per cent of global crude sea-borne shipments pass.
Mr. Naimi also discounted the threat as a hollow one. "If you believe Hormuz will be closed, I will sell you the Empire State [building]" he said.
Brent crude fell $1.49 (U.S.) to $124.22 a barrel by 12:41 p.m. EDT, off earlier lows of $123.20. U.S. crude fell $1.80 to $106.29 a barrel.
"Crude prices are down as the Saudis are assuring global markets that they have all the oil available for anybody who wants to buy," said Gene McGillian, analyst for Tradition Energy in Stamford, Conn.
"This follows recent news that Saudi production is stronger and that a large number of VLCCs [very large crude carriers]are headed from the Middle East to the U.S."
Saudi shipments to the U.S. have jumped 25 per cent this year and were expected to increase even more in coming months. U.S. Treasury Secretary Timothy Geithner said the Obama administration welcomed the OPEC kingpin's decision to fill any supply gap created by loss of Iranian crude.
The spike in oil and gasoline prices has become a key theme this U.S. election year, and the White House is considering ways to bring prices down, including a release of oil reserves from strategic stockpiles.
Sources said last week that Britain had decided to co-operate with the United States in a bilateral agreement to release stocks, in an effort to prevent high fuel prices derailing economic growth.
But prices pared losses early on Tuesday after France and Germany came out in opposition of an emergency release of their oil stockpiles. Last year, an emergency inventory release aimed at making up for Libyan supplies disrupted by the Libyan civil war was agreed by the 28-member, Paris-based International Energy Agency.
Additional pressure on prices came after a senior official with Libya's National Oil Corporation said exports were set to exceed prewar levels.
"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."
China said it was raising retail gasoline and diesel prices by 6 to 7 per cent, the biggest increase in nearly three years, which analysts say could curb demand growth.
Mr. Naimi gave short shrift to a possible U.S. and British release of emergency stocks to cool oil prices.
"What I can tell you is that they have done it before and it didn't do anything," he said. "You saw what happened in the last release. Nothing."