A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG
A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG

London —  Oil prices fell on Wednesday after a report allayed concerns about tightening supply, ending a rally that took prices to their highest since early November on concerns that oil cartel Opec output cuts and sanctions would take too much oil out of the market.

The International Energy Agency (IEA), a watchdog for oil consuming countries, said in a statement on Tuesday that markets were "adequately supplied" and that "global spare production capacity remains at comfortable levels."

Also weighing on prices, US crude stocks rose by 6.9-million barrels last week, more than expected, data from industry group the American Petroleum Institute showed on Tuesday. EIA stocks data was due later on Wednesday.

Brent crude futures were at $74.18 per barrel at 8.48am GMT, down 33 US cents from their last close. It was the benchmark's first fall after three days of rises, but it is still set for its fifth consecutive weekly gain.

US West Texas Intermediate (WTI) crude futures were at $65.89 per barrel, down 41c from their previous settlement — not enough to steer them away from what is set to be their eighth week of gains.

Crude oil prices for spot delivery rallied after the US said on Monday it would end all exemptions for sanctions against Iran, demanding countries halt oil imports from Tehran from May or face punitive action from Washington.

China, Iran's biggest oil customer, has formally complained about the move.

The spot price surge has put the Brent forward curve into steep backwardation, in which prices for later delivery are cheaper than for prompt dispatch.

The US has said it saw Saudi Arabia as a partner to balance oil markets.

"The [Saudi] kingdom will be relied upon to work with other producers to keep markets adequately supplied," PVM said in a note.

But some analysts say the market was still fundamentally bullish.

"The factors that could lead to higher prices are overwhelming," said Carsten Fritsch at Commerzbank, adding that a push towards $80 a barrel was more likely than a fall below $70.

Saudi energy Minister Khalid al-Falih said on Wednesday its production in May will not vary greatly from previous months.

He added that Saudi Arabia will aim to stick to its output quota fixed in a deal by oil cartel Opec, Russia and others, but that June numbers will be determined in a couple of weeks depending on customers' needs.

Reuters