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Oil Above $124 As US Supply Drop Offsets Saudi Pledge

  • Oil rose above $124 a barrel on Wednesday as a surprise drop in U.S. inventories and tension over Iran countered Saudi Arabia's efforts to lower prices by pledging to boost supply to meet any shortages.U.S. crude stocks fell by 1.16 million barrels last week, the government's Energy Information Administration said. That was largely in line with a report on Tuesday by industry group the American Petroleum Institute (API).Brent crude was up 68 cents at $124.80 a barrel by 1537 GMT, after falling more than a dollar on Tuesday. U.S. crude was up $1.34 at $107.41.

  • "The report is slightly bullish but not significantly so because they confirm what the API numbers were looking for," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut."There is a battle going on between the bulls who think that crude could push above $110 and people who think that supply and demand fundamentals don't justify oil being above $100."Tuesday's comments from the Saudi Oil Minister, Ali al-Naimi, reassuring the market that the world's top oil exporter was prepared to meet any supply shortfall weighed on prices for a second day.

  • "The Saudi Arabian oil minister's comment should keep a cap on prices and start to push them down... and there is plenty of supply," said Michael Hewson, senior market analyst at CMC Markets.The EIA report released at 1430 GMT followed on from Tuesday's API report showing an unexpected 1.4-million-barrel decline in U.S. crude stockpiles last week. A poll of analysts had predicted crude stocks would increase.IRAN SUPPORTS Analysts said the prospect of supply cuts from Iran and even a conflict in the Middle East between Iran and the West continue to put a floor under the market.

  • U.S. President Barack Obama issued a video accusing Iran of imposing an "electronic curtain" on its citizens on Tuesday, while Iran's supreme leader Ayatollah Ali Khamenei said the country will defend itself against an attack."That was another round of sabre-rattling from both sides and there is still a fear that something bad will happen in the region," said Thorbjorn Bak Jensen, oil analyst at Global Risk Management.Brent has gained almost 16 percent this year, pushed up by concern of supply disruption in Iran and by actual output losses in places from Syria to South Sudan and the North Sea.

  • Still, Iran has agreed to hold talks with the West about its nuclear programme, which it describes as peaceful, and analysts said this could put downward pressure on prices."The panic buying seems to have paused for now, which corresponds with what is happening with the geopolitical situation as the UN Council has re-opened negotiations with Iran," said James Zhang, analyst at Standard Bank.

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