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Oil falls as IEA says price-rally under threat amid Opec boost
[LONDON] Oil fell after the International Energy Agency said this year's price rally is under threat as Opec's biggest members pump record amounts of crude.
Futures dropped as much as 0.8 per cent in London, reversing an earlier gain of 0.6 per cent. Saudi Arabia, Iraq and the United Arab Emirates each produced record amounts of oil in May, the IEA said. The Paris-based adviser to 29 industrialized nations also raised its forecast for global demand growth this year by 0.3 percentage points.
"The fact remains that Opec will produce one million barrels a day in the second half of this year more than is required," Ole Hansen, head of commodity strategy at Copenhagen-based Saxon Bank A/S, said by e-mail. "The demand growth revision gave oil an initial boost."
Oil's recovery from a six-year low has slowed amid speculation that global production will expand as prices rebound, prolonging a surplus. The Organization of Petroleum Exporting Countries last week decided to maintain its quota as it sought to defend market share against higher-cost producers.
Brent for July settlement fell as much as 55 cents to US$65.15 a barrel on the London-based ICE Futures Europe exchange and traded at US$65.22 at 10:38 am local time. It gained 82 cents to US$65.70 on Wednesday. The European benchmark crude traded at a premium of US$4.48 to West Texas Intermediate.
WTI for July delivery fell 65 cents or 1.1 per cent to US$60.78 a barrel in electronic trading on the New York Mercantile Exchange. The contract climbed US$1.29 to US$61.43 on Wednesday. The volume of all futures traded was about 26 per cent below the 100- day average for the time of day. Prices are up 14 per cent this year.
Saudi Arabia, the world's largest crude exporter, boosted output to 10.25 million barrels a day last month from 10.16 million in April, according to the IEA. Output from the Opec, which provides around 40 per cent of the world's oil, rose by 50,000 barrels a day to 31.33 million barrels a day, the highest level since August 2012.
"Barring unforeseen outages, Opec is likely to keep pumping at around 31 million barrels a day during the coming months as Middle East producers sustain higher rates to preserve market share," the report said.
The IEA boosted its 2015 estimates for global oil demand by 320,000 barrels a day from last month's report to 94 million barrels a day. Momentum for demand growth will probably ease somewhat in the second half of this year, partly due to a deterioration in economic prospects for developed countries, it said.
"Today's report was rather mixed, it still shows that there is excess production," Giovanni Staunovo, a Zurich-based analyst at UBS Group AG, said by e-mail.