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NEW YORK - Oil prices fell more than US$1 to US$54 on Monday, after Saudi Arabia's ambassador to the United States said current prices were good for consumers and producers and other Opec members showed signs of hiking supplies for March.
US crude settled down US$1.41 at US$54.01 a barrel, after falling as low as US$53.75 during the day. London Brent crude dropped US$1.61 to US$53.68 a barrel.
Warm US weather in early January started a price drop that has taken around 12 per cent off US oil prices since the start of the year, despite pledges to cut production by the Organisation of Petroleum Exporting Countries.
But Saudi Arabia's outgoing ambassador to the United States said Monday Opec's largest producer was satisfied with US crude near US$50 a barrel, saying this level was good for both consuming and producing nations.
"The present level of oil prices is adequate in our view," Prince Turki Al-Faisal said.
His comments came after news that fellow Opec members Nigeria and United Arab Emirates were ramping up supplies in March, despite an Opec agreement to deepen cuts.
Nigeria's oil exports were expected to climb to a 14-month high of 2.21 million barrels per day in March, from 1.8 million bpd the previous month.
Traders attributed the hike to a backlog in shipments following militant attacks last month.
Industry sources also said Abu Dhabi, the main producer in the United Arab Emirates, was increasing supplies to Asia in March.
Abu Dhabi told Asian refiners they would receive their full term crude supplies, after cutting shipments in February.
Opec agreed in October to curb output by 1.2 million bpd, or 4 per cent, effective November 1, and by an additional 500,000 bpd on February 1 after US oil prices fell from record highs above US$78 a barrel in July.
"There is the issue of Opec credibility, with the report about Nigeria exports being up in March," said Mike Fitzpatrick, vice president for energy at Fimat USA. "As was the case last week, there is little reason to be long over US$55 or short below US$50."
Oil has tumbled 19 per cent since Jan. 1, to a low of US$49.90 on Jan. 18, because of a mild start to the northern winter and a shift in investor positions in commodities.
Opec has said it will wait to assess the effects of existing supply cuts before calling for further reductions.
Recent colder weather in the US Northeast, the world's biggest heating oil market, helped rally prices back over US$55 last week. An influx of pension funds into passive commodities indexes also helped support prices, Lehman Brothers said.
"Pension funds with 2007 commodity allocations finally entered the market in a big way, investing in indices, including the Lehman Brothers Commodity Index (LBCI) and the Goldman Sachs Commodity Index (GSCI) during the week," a Lehman Brothers report said.
Further support came from the US government's announcement last week that it would add 11 million barrels to the nation's strategic oil reserves.
"It should provide some support in the mid-US$50s," said Evan Smith, fund manager at Texas-based US Global Investors.
"I think the market will be rangebound at around US$50-US$60 for the first six months and US$55-US$65 for the second half."
- REUTERS
