Oil prices fell below US$123 a barrel yesterday as dealers bought Saudi Arabia's view that global markets were brimming with supply despite the chaos in Libya.
Saudi Arabia, the world's top oil exporter, said it limited output in February because refineries had no need for extra to cover for the Libyan disruption, where production has dropped by more than 1 million barrels per day (bpd).
Saudi's crude oil output stood at 8.3 million bpd last month, down from 9.1 million bpd in February, the Saudi oil minister Ali al Naimi said in remarks carried by the state-run Kuwait News Agency.
Prices have vaulted into triple digits this year as unrest erupted in parts of the Arab world.
Dr Amir Alizadeh, of the Dubai campus of Cass Business School of City University London, attributes crude's recent ascent to a "tsunami" of events affecting short-term supply and demand.
"Market volatility from our point of view is like London buses: the bad news can bunch up. It's what we call volatility clustering," Dr Alizadeh said.
"What has happened recently is that we've had unrest in North Africa at the same time as all this effort to bring back the [global] economy in good order has boosted demand.
"The bad news about supply coming on the back of increased demand creates volatility."
The two-month civil war in Libya has cut its exports of high-quality crude to Europe to almost zero, prompting European refiners to increase their purchases of whatever equivalent crude supplies are on the market. That has lifted demand for North Sea Brent crude and oil from Nigeria and the Caspian region.
The message for Opec, if the organisation wants to stabilise prices, is to maintain enough spare output capacity to meet future demand, Dr Alizadeh said.
"The fact of the matter is that with low oil prices, even Opec countries don't tend to improve the infrastructure," he said.