Oil price stalls following surge

Opec members are judged to be pumping oil at close to capacity

The surge in oil prices has paused as traders take stock of Saudi Arabia's offer to up its output.

New York light sweet crude fell 58 cents to $41.14 a barrel. The day before it had closed at the highest level in its 21-year history.

Widely-traded Brent North Sea crude for July fell 73 cents to $37.44 as profit taking took place in the oil market. Many observers say soaring demand and security fears, rather than producers' intransigence, are responsible.

"Without any news this morning, people started to sell. There was some profit-taking," said Fimat USA market analyst Mike Fitzpatrick.

"The path of least resistance is down unless there is fresh news like a pipeline (in Iraq) blowing up, adding to the security premium."

Opec Dissent

Saudi Arabia had made its unexpected offer to raise its production by 10% on Friday, just as fellow members of the Opec oil cartel downplayed its earlier suggestion of an increase in quotas.

The decision, which followed calls by leaders of oil-consuming countries for prompt action from Opec, helped oil prices to step back from 21-year highs.

In reality, Saudi Arabia is the only one of Opec's 11 members - who between them produce a third of the world's oil - with much headroom for extra output.

Iraq's oil supply keeps getting disrupted

Many Opec members voiced their disapproval of the unilateral move, although Iran for one said a "limited" increase might be a good idea.

Factors

Friday's falls on the back of the Saudi move were short lived, as traders looked at the market and judged that the cartel could not be blamed for the current situation.

Opec members and the world's other producers are generally judged to be pumping oil at a rate not far off their maximum capacity.

Soaring demand from fast-growing China is widely seen as one reason for the tight market.

Growth in the US is also a factor, since the new Saudi output is unlikely to reach US markets till August and refining capacity is falling short of what is needed.

Security concerns in the Middle East and elsewhere continue to ratchet up tension in the energy business, while persistent attacks on Iraq's infrastructure dog attempts to keep its supplies flowing.

"For once, Opec may be right that this price hike is not being driven by the mighty cartel," said William Buchanan, oil analyst at Standard Bank.