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Oil drops sharply as IEA expects inventories to rise
[NEW YORK] Crude oil prices fell for the first time in four sessions on Tuesday after the International Energy Agency (IEA) warned that ample supplies will raise global inventories before investment cuts begin to significantly dent production.
Oil stockpiles in member countries of the Paris-based Organization for Economic Cooperation and Development (OECD) may approach a record 2.83 billion barrels by mid-2015, said the IEA, advisor on energy policy to a group of Western nations.
US March crude futures fell US$2.84, or 5.37 per cent, to settle at US$50.02 a barrel, after dropping to US$49.86.
Brent March crude fell US$1.91, or 3.3 per cent, to settle at US$56.43 a barrel, having fallen as low as US$56.11. "It's the battle of the oil outlooks playing out here," said John Kilduff, partner at New York energy hedge fund Again Capital LLC. "The IEA report is a good reminder that there's still a lot of supply to come and it doesn't give much hope for the bulls who say we've hit bottom and are now on the way up." While the supply-demand balance in oil was expected to tighten by end-2015, the IEA cautioned that "downward market pressures may not have run their course just yet." The IEA also predicted that demand for oil from the Organization of the Petroleum Exporting Countries (Opec) will hold at 29.4 million barrels per day (bpd) this year, and said US shale oil output growth will pause before regaining momentum.
The IEA's outlook was more bearish than Opec's monthly report on Monday which forecast 2015 demand for oil from its members will rise to 29.2 million bpd, up 430,000 bpd from an earlier forecast.
The US Energy Information Administration (EIA) added to the bearish sentiment in its report on Tuesday that kept its 2015 and 2016 domestic oil production expectations virtually unchanged from the previous month.
Swiss-based, Dutch-owned commodity trading company Vitol's Chief Executive Ian Taylor also gave a bearish view when he told the International Petroleum Week conference in London that he expects a "dramatic" build in oil stocks over the next few months.
US crude stocks rose 1.6 million barrels to 413.7 million last week, industry group the American Petroleum Institute (API) said late Tuesday.
The gain was less than the 3.7-million-barrel rise expected by analysts surveyed by Reuters ahead of the report and Brent and US crude futures pared losses in post-settlement trading.
The EIA's inventory report is due at 10.30 am EST (1530 GMT) on Wednesday.