Oil falls to post-2010 low after IEA cuts demand forecasts
Wednesday, 15 October 2014 00:55
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IEA cuts global oil demand estimates for 2014 and 2015
Demand for OPEC crude oil down by 200,000 bpd
Saudi Arabia, Kuwait play down OPEC output cut possibility
LONDON (Reuters): Brent crude fell to a fresh low below $88 a barrel on Tuesday, trading at the weakest level since 2010 after the West’s energy watchdog cut its estimates for oil demand this year and next.
The global oil benchmark has dropped almost 25% from its 2014 high in June as supplies have risen and global demand has slowed, creating a glut in many markets.
The International Energy Agency said on Tuesday world oil demand growth would be much weaker than previously expected and raised questions about OPEC’s willingness to rein in supplies, suggesting oil prices may drop further.
“Recent price drops appear both supply and demand driven,” the IEA said in its monthly oil market report. “Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.”
Brent crude dropped $1.30 to $87.59, its weakest point since December 2010, before recovering slightly to around $87.81 by 1112 GMT.
US crude dropped $1.01 a barrel to $84.73 after it pared sharp intraday losses on Monday to settle down eight cents.
The IEA, which advises industrialised countries on energy policy, cut its estimates for global oil demand growth by 250,000 barrels per day (bpd) for this year and by 90,000 bpd for 2015. It said demand for OPEC oil would be 200,000 bpd lower for both years.
The Organization of the Petroleum Exporting Countries, which supplies more than a third of the world’s oil, has shown little sign that it will cut output, despite a glut in many markets.
Saudi Arabia and Kuwait have both played down the possibility that the cartel would reduce output when it next meets on 27 November.
“IEA is pulling the plug in the oil market today,” Bjarne Schieldrop, an oil analyst at SEB Enskilda, told Reuters Global Oil Forum.
Swiss oil market analyst Olivier Jakob said world oil inventories would rise by around 2 million bpd in a “major stock-build” in the first half of 2015 unless OPEC cut output.
“And that is without accounting for any easing of sanctions against Iran and with a still very strong demand growth rebound for next year,” Jakob said.
Some analysts expect oil markets to recover ahead of peak winter demand in the northern hemisphere, however.
“We see the potential for a positive bounce into year-end, particularly given extremely bearish sentiment and positioning,” Morgan Stanley analysts said in a note.
“Even if OPEC is not overly responsive before year-end, which we expect, fundamentals have turned, which should eventually lift crude prices.”
Germany’s economy could shrink in the third quarter but any recession, as defined by two or more consecutive quarters of declining output, should not last long, the chief economist of the think tank ZEW said on Tuesday.
Investors were looking ahead to weekly US data on oil and product inventories for price direction.
US commercial crude stocks were forecast to have increased in the week ended 10 October, while refined products are likely to have fallen, according to a Reuters survey ahead of the inventory reports out of the world’s biggest oil consumer.
Industry group the American Petroleum Institute (API) will issue its report on Wednesday, and the US Department of Energy’s Energy Information Administration (EIA) will follow with its weekly data on Thursday. The reports have been delayed a day due to Monday’s Columbus Day holiday.
