Oil Prices Decline on Weaker Demand Forecast
Oil prices slid Tuesday on concerns about demand, while global output remained unaffected by violence in the Middle East and Eastern Europe.
Brent, the global benchmark, is down 10% from highs seen in June, when an insurgency in Iraq fueled worries that the country's considerable oil production would be halted. Instead, global oil supplies have remained ample, while demand from European and Asian refineries has been weak, leaving some West African cargoes searching for buyers in July.
Two forecasting agencies reinforced that view Tuesday, lowering their expectations for 2014 demand.
The International Energy Agency cut its forecast for growth in demand by 15% to 1 million barrels a day. The agency, which advises industrialized nations, said global oil demand in the second quarter of 2014 grew at the lowest rate in more than two years.
"The IEA was definitely a trigger behind the day's selling," said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates. "It brought home what most of us had been expecting...which was a weaker pace of demand across this year."
Brent settled down $1.66, or 1.6%, at $103.02 a barrel, the lowest level since July 1, 2013. Light, sweet crude for September delivery on the New York Mercantile Exchange fell 71 cents, or 0.7%, to $97.37 a barrel.
The U.S. Energy Information Administration followed the IEA with its own revised forecast. The agency expects 91.56 million barrels a day in global consumption this year, down from its prior estimate of 91.62 million barrels a day.
"Demand is definitely underwhelming, specifically in emerging markets," said Harish Sundaresh, commodity strategist and portfolio manager for Loomis, Sayles & Co., a Boston asset manager that oversees about $221 billion. Still, Mr. Sundaresh said he sees current price levels as too low, because North Sea maintenance in late August and September will reduce Brent supplies. Mr. Sundaresh has bet that U.S. and Brent prices will rise.
As demand ebbs, global production has remained high, even with violent conflicts in Libya, Iraq and Ukraine.
"There aren't really any supply disruptions with geopolitical developments," said Roland Austrup, chief executive of Integrated Managed Futures Corp. in Toronto, which manages about $50 million. "There's no catalyst to push prices higher."
Mr. Austrup's fund has a small position betting on falling Brent prices.
Brent prices could fall to $100 a barrel by the end of next week, Mr. Ritterbusch said.
Money managers, including hedge funds, placed record-high bets on rising U.S. and Brent oil prices in June, but many traders have unwound those wagers since. As of Aug. 5, their cumulative bets on rising U.S. oil and global prices fell to the lowest levels since January.
However, many analysts and investors say the market has discounted the possibility of supply interruptions too quickly.
"In these past weeks during the selloff, the market completely put aside or underestimated the growing geopolitical risk, which in fact has been increasing," said Edouard Mouton, head of the quantitative desk at Diapason Commodities Management SA in Lausanne, Switzerland, which manages $5.9 billion in assets. Diapason has bet that Brent prices will rise.
In the U.S., traders are waiting for weekly inventory data. Analysts expect the EIA to report that crude-oil supplies fell by 1.7 million barrels last week, while gasoline inventories decreased by 1.3 million barrels and stocks of distillates, including diesel and heating oil, rose by 300,000 barrels. The EIA report is due Wednesday at 10:30 a.m. EDT.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for the same week showed a 229,000-barrel rise in crude supplies, according to industry sources. The group also said that gasoline supplies rose by 2.7 million barrels and distillate stocks fell by 2.6 million barrels, according to the sources.
Front-month September diesel fell 3.42 cents, or 1.2%, to $2.8450 a gallon, the lowest settlement price since Nov. 7. September reformulated gasoline blendstock, or RBOB, fell 1.80 cents, or 0.7%, to $2.7345 a gallon.