Oil prices drop as IEA predicts demand slowdown

GMT 15:24 2015 Thursday ,11 June

Arab Today, arab today Oil prices drop as IEA predicts demand slowdown

US benchmark West Texas
London - AFP

Oil prices dropped on Thursday as the International Energy Agency predicted that a recent surge in world crude demand was set to end.

US benchmark West Texas Intermediate for delivery in July fell 58 cents to $60.85 a barrel compared with Wednesday's closing level.

Brent North Sea crude for July slid 46 cents to stand at $65.24 around midday in London.

World oil demand growth soared to a four-year high in the first three months of 2015, but the surge is unlikely to persist, the IEA said Thursday in its monthly report.

The strong growth, which reached 1.7 million barrels per day in the first quarter, was underpinned by an economic recovery, a European winter that was colder than the previous year's, and lower crude prices which spurred consumption.

"However, there are doubts that this trio will persist" in the second half of 2015, said the IEA.

Heating needs are not expected to return to such levels and crude prices have also started to rise and are therefore likely to stymie demand.

- Tumbling stockpiles -

The market was reacting also to a mixed US energy report that showed a huge decline in crude and gasoline reserves but record-high output levels, analysts said.

The US Department of Energy's inventory report published Wednesday showed that crude reserves fell 6.8 million barrels and gasoline supplies dropped 2.9 million barrels last week.

But output remained stubbornly high, adding 24,000 barrels to an average 9.61 million per day during the week, the highest on record.

"Prices saw an upward lift earlier because of the inventory numbers but... production numbers are a concern," Ric Spooner, chief market analyst at CMC Markets in Sydney, told AFP.

Dealers have been hoping that a drawdown of the United States' burgeoning reserves during the summer months, coupled with a slowdown in its output from shale rock, could whittle down excess global supplies.

A surplus of US crude inventories was one of the reasons oil prices collapsed by more than 50 percent between June and January.

- Steady outlook -

OPEC on Wednesday stuck to its forecast that oil demand will pick up this year but warned that over-supply may still keep a "ceiling" on crude prices, even as it kept on increasing its own output to a two-year high.

The Organization of the Petroleum Exporting Countries stuck to its prediction of total oil demand in 2015 of 92.5 million barrels per day, up 1.18 mbpd from 2014.

Consumption is expected to pick up pace in the second half in line with a global economic rebound, the 12-country cartel said in its June monthly report.

OPEC, which has traditionally sought to defend price levels by cutting output if needed, dramatically switched strategy last November when it opted to leave its production target unchanged.

At its bi-annual production meeting last week in Vienna, OPEC stuck to this strategy, keeping its output target unchanged at 30 million barrels per day.

This is seen as an attempt to maintain market share and put pressure on US shale oil producers, which need a higher oil price to be profitable than in traditional extraction methods -- a strategy that experts say has had some success.

Dealers are also closely monitoring the possible return of Iranian supplies that have been curtailed by international sanctions against Tehran.

Six global powers -- Britain, China, France, Germany, Russia and the United States -- are trying to nail down a deal by June 30 to curb Iran's nuclear ambitions by reducing its stockpiles of enriched uranium and mothballing some of its sites.

If the agreement is reached and implemented, the powers will gradually scale back sanctions, allowing OPEC member Iran to export much more oil than it does now.


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