Oil prices eased on Monday as top world exporter Saudi Arabia slashed prices for its westbound crude sales in an effort to shift the large volumes it is offering to cool world markets. London Brent crude fell 43 cents to $40.80 a barrel. Trade was subdued, with US markets closed because of the Labour Day holiday.
Prices fell as Saudi Arabia cut prices for October-loading crude to both the United States and Europe, following up on its pledge to give customers all the crude they want to try cool oil prices.
Prices for heavier grades were cut particularly hard, as the kingdom tries to make them more attractive for refiners who are put off by their high yield of low-value fuel oil.
The Saudi pledge has failed to bring prices down much as refiners are not keen to take heavy grades that make up most of the extra Saudi supply. They want lighter grades, which yield more high-value products like gasoline.
Prices are more than $4 below a peak hit last month after big-money speculative funds took profits from a rally that has pushed prices 40 percent higher this year.
Crude speculators on the New York Mercantile Exchange cut net long positions for the week ended August 31 to 27,962, down 40 percent from the level 2 weeks previously, the Commodity Futures Trading Commission said late on Friday.
Selling was triggered in part by healthy US fuel inventories in the US heading into Labour Day, when summer driving demand winds down.
Rapid world demand growth and tight spare production capacity has limited the price falls. US inventory data last week showing crude stocks at their lowest in five months brought prices up sharply from six-week lows.
"Hedge funds bailing out might continue to depress the price in the short term, but fundamental tightness will remind the bulls they should not leave the stage for too long," said analysts PFC Energy in a report.
Fear of supply disruption from major Middle East producers has also underpinned price strength.
Shipments along Iraq's northern pipeline were still halted following a fierce sabotage attack last week. Repairs to the line will take at least a week.
Sabotage has kept the pipeline, which runs from Kirkuk to the Turkish port of Ceyhan, mostly shut since the US-led invasion in March 2003.
Opec ministers meet on September 15 to set supply policy for the fourth quarter. The group, which controls half world oil exports, has said it is doing all it can to control prices.
The 10 Opec members with quotas are pumping around 1.8 million bpd above its official 26 million bpd limit. Senior Opec officials have said the group will raise its formal output ceiling to reflect actual supply.