Oil Prices Slip as IEA Announces Potential Slowdown

Oil prices fell below $99 per barrel on Thursday, retreating after a 2 percent rally the previous session, as the International Energy Agency said a slowdown could cap prices while investors waited for China's GDP data due on Friday.

Brent crude fell $1.26 to $98.97 by 1215 GMT, while U.S. crude was at $84.59, down $1.22.

A global economic slowdown could put a lid on oil prices but there is a risk "nasty supply surprises" could reignite a market rally, the IEA said on Thursday.

The agency, which advises industrialised countries on energy policy, said market fundamentals had "clearly eased since the start of the year" and oil stocks had built up significantly over the last few months.

"We still have conflicting push and pull influences, with Iran on one side and a poor economic outlook on the other," said Roy Jordan at Facts Global Energy.

Sanctions by the West on Iran over its disputed nuclear programme has severely curtailed its oil exports.

"If China's GDP data is not good, there will be an economic stimulus programme and that will support prices, so there does not seem to be a lot of scope for going lower," Jordan said.

China's gross domestic product data could show the weakest expansion in three years.

More policy easing may come only if the economy weakens further, minutes from the U.S. central bank's June meeting showed.

In the longer run, a severe slowdown in Chinese growth could end up supporting prices if it prompts the U.S. Federal Reserve to launch stimulus measures, some analysts say.

Oil also declined with the euro, which hit a fresh two-year low on Thursday, while European shares also fell on disappointed hopes for action by the Federal Reserve on Wednesday.

Euro zone industrial production increased by 0.6 percent in May from the previous month, data from the European Union statistics agency Eurostat showed on Thursday, against expectations of zero growth.

But the still weak numbers failed to lift oil prices, which slipped by $1 a barrel shortly after the data was released.

A grim outlook for the global economy, already roiled by a festering debt crisis in the euro zone, has muddied the demand outlook for most commodities.

Oil has been hit hard, with prices suffering their largest three-month drop since the 2008 financial crisis in the second quarter.

"All across risk assets, including oil, investors are seeing the global economic outlook as a glass half-empty," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney. "There is a lot of caution ahead of the Chinese data."