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(Bloomberg) — Oil fell in London, erasing last week’s gain as Saudi Arabia said it’s pumping crude near a record pace, bolstering speculation that a global glut will persist. Futures dropped as much as 1.2 percent. Saudi Arabia is producing almost 10 million barrels a day, Oil Minister Ali al- Naimi said on Sunday, adding he was optimistic about the market. U.S. companies are preparing to increase drilling activity later this year and building a “war chest” of uncompleted wells, according to Goldman Sachs Group Inc. Oil has lost 13 percent from this year’s peak in February as U.S. crude stockpiles and output rose to the highest levels in more than three decades. Prices are unlikely to return to $100 a barrel because a surge would draw higher-cost producers to the market, said Mohammed Al-Madi, Saudi Arabia’s governor to the Organization of Petroleum Exporting Countries. “The supply story is still there,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone. “The volatility suggests that the market is looking for a near-term low.” Brent for May settlement slid as much as 67 cents to $54.65 a barrel on the London-based ICE Futures Europe exchange on Monday and was $54.79 at 12:20 p.m. Sydney time. The contract climbed 89 cents to $55.32 on Friday, capping a 1.2 percent increase for the week. The European benchmark crude traded at a premium of $8.74 to West Texas Intermediate, the U.S. marker grade.

Saudi Output

WTI for May delivery decreased as much as 67 cents, or 1.4 percent, to $45.90 a barrel in electronic trading on the New York Mercantile Exchange. The April contract expired on Friday after advancing $1.76 to $45.72. Total volume was about 58 percent below the 100-day average. Front-month prices are down 14 percent this year. Saudi Arabia, the world’s biggest oil exporter, is able to meet demand from any customer, al-Naimi said at a conference in Riyadh. While global consumption is improving, there isn’t enough need to expand the nation’s production capacity beyond its current level of 12.5 million barrels a day, he said. The kingdom pumped 9.85 million barrels a day in February, boosting output for a second straight month, data compiled by Bloomberg showed. It’s the largest producer in OPEC, whose 12 members supply about 40 percent of the world’s crude. U.S. drillers further reduced the number of active machines rigs seeking oil to the fewest since March 2011. The nation’s rig count dropped for a 15th week to 825, according to data from Baker Hughes Inc. “The current rig decline can reverse given flexibility in bringing back rigs at a lower cost,” Goldman analysts including Damien Courvalin in New York said in an e-mailed report dated March 20. “The backlog of uncompleted wells is rising.”

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Yee Kai Pin, Aaron Clark