NEW YORK – Oil prices dropped 10 percent below recent record highs on Friday as rising stockpiles in the United States and the promise of more OPEC oil soothed widespread worries of a summer supply crunch.
U.S light crude futures (search) bottomed out at $38.31 a barrel, more than $4 below a record futures high of $42.45 a barrel hit midweek. Brent crude in London was down 50 cents at $35.90 a barrel.
Dealers said an increase in U.S. oil supplies to their highest level in nearly two years and an OPEC (search) deal to raise its output ceiling outweighed underlying fears over rapid global demand growth and turmoil in the Middle East.
"The OPEC determination to reduce prices psychologically weighs on the market," said Tom Bentz, energy market analyst at BNP Paribas in New York.
The Organization of the Petroleum Exporting Countries agreed in Beirut on Thursday to raise formal output limits by two million barrels per day (bpd) from July 1, and another 500,000 bpd from August.
OPEC members Saudi Arabia and the United Arab Emirates have said they will deliver about one million bpd of real extra oil in June, in advance of the official hike.
The cartel's plan undershot market expectations that Saudi Arabia would lead the cartel to an immediate quota increase of 2.5 million bpd, or 11 percent, but dealers said they were nonetheless convinced of the group's intentions to cool the red-hot market.
High oil prices have rippled across many sectors of the economy, sparking fears over inflation, and raising costs for airlines, manufacturers, truckers and the average driver in the early days of the summer driving season.
The losses were also supported by signals of increasing energy stockpiles in the United States, the world's biggest petroleum consumer.
The Department of Energy (DOE) said on Thursday that national crude oil supplies rose last week to the highest level in since August 2002, helped along by near-record imports of 10.7 million bpd.
The DOE said the tide of imports, which fell just short of a record flow of 10.76 million bpd hit last September, was accompanied by a surge in cargoes from Mexico.
The DOE said in a separate report that record high energy costs, including those at the pumps, could start to ease in the coming weeks, thanks to the expected increase in crude oil shipments from OPEC producers.
Retail gasoline prices in the United States average roughly $2.05 a gallon, but remain about half those in parts of Europe, where the taxman takes a larger share.
Oil dealers, however, were served a sharp reminder Friday of the risks to supply security in the Middle East -- a factor that analysts say will continue to keep a floor under the price of a barrel.
Al Qaeda's (search) leader in Saudi Arabia praised an Islamic militant attack in the Saudi oil city Khobar last weekend that killed 22 people for its impact on crude prices, signaling that oil has become a key strategic target.
"The operation in Khobar was a new victory which God bestowed upon the mujahideen and which put the Saudi government in a deep crisis," Abdulaziz al-Muqrin said in a statement on an Islamist web site. "It took the price to its highest levels of over $42, while Saudi Arabia is committed to America's prosperity by providing oil at the cheapest prices."