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Oil declines as IEA says surplus will last longer than expected
[NEW YORK] Oil dropped as the International Energy Agency changed its view on global oversupply, seeing a glut persisting into 2017.
Futures fell 3 per cent in New York. The oil surplus will last longer than previously thought as demand growth slumps and output proves resilient, the IEA said. US crude supplies probably rose by 4 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.
The nation had the biggest supply decline in 17 years the prior week when a tropical storm disrupted imports and offshore production.
"The IEA said the supply overhang will persist longer than previously expected," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "Also, there are expectations that US inventories will post a big build as all the imports that were delayed arrive."
Oil has fluctuated since rallying in August amid speculation the Organization of Petroleum Exporting Countries and Russia would agree on measures to stabilise the market at a meeting later this month. Rising Opec output has offset the effect of declining supplies elsewhere, maintaining the glut, the IEA said in a monthly report.
West Texas Intermediate for October delivery fell US$1.39 to settle at US$44.90 a barrel on the New York Mercantile Exchange. Total volume traded was 28 per cent above the 100-day average.
Futures rose from the settlement after the industry-funded American Petroleum Institute was said to report US crude supplies climbed by 1.44 million barrels last week.
Cushing, Oklahoma crude stocks fell by 1.12 million barrels, according to API. WTI traded at US$45.20 at 4:39pm in New York.
Brent for November settlement slipped US$1.22, or 2.5 per cent, to US$47.10 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a US$1.62 premium to WTI for November delivery.
Declines accelerated as US equities dropped and the dollar climbed while investors remained on edge over the central banks' ability to bolster growth. Energy companies led losses in the Standard & Poor's 500 Index.
The S&P 500 Oil & Gas Exploration and Production Index tumbled more than 4 per cent.
"The drop in oil prices isn't helping the stock market," said Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, which oversees US$133 billion of assets.
"The IEA report raised new concerns about global demand and global growth, which are weighing on the markets."
The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, rose 0.8 per cent. A stronger greenback curbs the appeal of raw materials priced in the currency to investors.
Global oil consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from Opec's Gulf members is compounding the glut, the IEA said. As recently as last month, the agency had expected the market to return to equilibrium this year.
"This was a marked shift in outlook by the IEA," said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. Opec's "long game got a little longer, implying the need for oil prices to remain lower for longer to spur the necessary adjustments in supply for the re-balancing of the market."
Opec flipped its forecasts for rivals' supplies in 2017, predicting an increase in output from outside the group instead of a decline, according to a report Monday. Production from outside the group will grow by 200,000 barrels a day next year, compared to 150,000 a day expected a month ago.
US gasoline stockpiles probably fell by 1.1 million barrels last week, according to the median estimate in the Bloomberg survey before the EIA report. Nationwide crude supplies are at 511.4 million barrels, more than 100 million barrels above the five-year average, according to EIA data.
Libya's plans to restore oil production suffered a significant setback after forces loyal to the eastern region's powerful military commander ousted government-backed fighters from key export terminals, just days before a tanker was due to load the first shipment in almost two years.
The Kashagan oil field, one of the biggest to come on stream in decades, will produce less than half the forecast 370,000 barrels a day within a year, according to energy consultant Wood Mackenzie Ltd.
Anadarko Petroleum Corp agreed to buy Gulf of Mexico oil assets from Freeport-McMoRan Inc for US$2 billion and said it will use revenue generated by the offshore wells to develop its US oil fields on land.
Colonial Pipeline's Line 2, which normally hauls distillates, will also carry gasoline until the company resumes Line 1 service, spokesman Steve Baker says by e-mail.