Forecast Sends Oil Prices Falling
Oil prices fell to their lowest level in six weeks Tuesday, dropping nearly $2 a barrel after the International Energy Agency forecast slower growth in oil demand this year.
Light, sweet crude for May delivery fell $1.85 to settle at $51.86 a barrel on the New York Mercantile Exchange, where unleaded gasoline futures fell 1.6 cents to $1.534 a gallon. Oil prices are more than $6 below the intraday high of $58.28 a barrel set last week, though they remain 37% higher than a year ago.
In its report, the Paris-based energy agency suggested that rising U.S. interest rates and energy costs would reduce world hunger for oil this year. It lowered its estimate for world oil demand growth by 50,000 barrels a day to 1.77 million barrels a day, while forecasting average demand at 84.27 million barrels a day -- slightly lower than the previous figure.
The agency, which advises 26 industrialized countries on energy policy, also said government measures in Asia -- and Chinese oil demand growth that was only half of estimates last year -- would temper the market.
“Fears of a surge in second-quarter Chinese demand are receding,” the agency said.
Some analysts said they expected markets to calm in the coming weeks.
“The hedge funds have become -- if not absolutely bearish -- at least feeling that the highs are behind us and will have to wait until the third quarter to take prices back toward their $60 target,” said analyst Deborah White of SG Securities in Paris.
Still, others said that over the short term, the market could move upward.
“The rise last night shows that the market is still in a bullish mood, and around the $53 mark, people still view it as relatively cheap,” said Daniel Hynes, energy analyst at Australia and New Zealand Banking Group Ltd. in Melbourne, Australia. Hynes said the market would remain volatile, and he expects prices to rise next week.
Overall, crude prices have eased since last week on a rise in crude stocks in the United States and comments from the Organization of the Petroleum Exporting Countries on a possible production increase next month.
The 11-member oil cartel raised output limits by 500,000 barrels a day in March to 27.5 million barrels a day in a bid to cool prices. It left room for a second 500,000-barrel increase before a June meeting if prices failed to drop below $55.
Last week, the U.S. Energy Department said the nation’s inventory of crude oil grew by 2.4 million barrels to 317.1 million barrels, or 8% higher than last year. Analysts are expecting another increase when the data are released today.
