NEW YORK (Dow Jones)--Crude futures tumbled below $100 a barrel Friday, wiping out three-straight days of gains, on signs Saudi Arabia is raising oil output.
Light, sweet crude for July delivery settled $2.64, or 2.6%, lower at $99.29 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange closed 84 cents lower at $118.73 a barrel. The spread between the world's two major oil benchmarks, Nymex-traded West Texas Intermediate and Europe's Brent, widened to a new record.
Oil refiners in Asia said that Saudi Arabia, the world's largest crude exporter, is offering more crude to buyers for July. The action signals the kingdom is following through on its pledge to meet world oil demand despite a failure of the Organization of Petroleum Exporting Countries this week to approve a production increase.
At OPEC's meeting in Vienna on Wednesday, Gulf states led by Saudi Arabia pushed a plan to raise production quotas. But six OPEC members, including price hawks Iran and Venezuela, opposed an increase. Public sparring ensued following the meeting, highlighting cracks between member states and raising uncertainty, though some analysts said it's unlikely there will be any supply issues.
"The organization may have lost a lot of credibility, but from a fundamental perspective nothing much has changed. Production is well above quotas and Saudi Arabia guarantees to ship as much oil as the market asks for," said Filip Petersson, a strategist at SEB Commodity Research, in a client note.
A decline across markets Friday helped add momentum to the selling. Other commodities, including silver and copper also fell. The Dow Jones Industrial average was recently down 136 points, or 1.1%, to 11987. Energy stocks were one of the Standard & Poor's 500's weakest sectors.
"A lot of people are watching the S&P 500 as a leading indicator of future petroleum demand. When traders see the S&P going negative, they sell some crude," said Tim Evans, an oil analyst with Citi Futures Perspective.
Worries about an economic slowdown have combined with supply concerns in recent weeks to keep oil prices in a tight range near $100 a barrel for most of the last month.
Most analysts expect oil consumption to continue to grow through 2011, particularly in the second half when the global economy is expected to pick up speed. But U.S. economic data in recent weeks has led to concerns about how the recovery will progress as the Federal Reserve winds down its stimulus programs.
The differing economic prospects between the U.S. and international markets such as China have contributed to the discount for U.S. crude over its European counterpart. A lack of pipelines from the middle of the U.S. has led to a supply glut in the oil hub of Cushing, Okla. Without improving domestic demand brought on by an improving economy, traders are worried that supplies could remain elevated.
"Worldwide growth is seen as strong, North American growth is seen as lackuster. That, more than anything in the physical market, is driving the spread to these levels," said Kyle Cooper, managing partner at IAF Energy Advisors in Houston.
Front-month July reformulated gasoline blendstock, or RBOB, settled 2.21 cents, or 0.7%, lower at $3.0177 a gallon. July heating oil settled 3.27 cents lower at $3.1051 a gallon.