MW: Oil falls for third day as IEA sees weaker demand
Crude-oil futures fell Friday for a third straight session after an International Energy Agency forecast showed world oil demand will drop for two consecutive years for the first time in decades.
The IEA report came after the U.S. government and the OPEC cartel released similar outlook earlier this week.
Crude for February delivery, the benchmark contract that expires Tuesday, fell 20 cents, or 0.6%, to $35.20 a barrel on the New York Mercantile Exchange. The more active March contract also fell to stand at $43.12.
The situation in which the price of a short-term futures contract is worth less than a longer term one is called contango, as opposed to "backwardation," in which the short-term contracts are worth more.
Contango has reached historic high levels recently as the economic turmoil dampens oil demand and producers and investors hoard oil in the hope that prices will rise in the future.
Also on energy trading Friday, February reformulated gasoline fell 0.4% to $1.1697 a gallon and February heating oil slid 0.6% to $1.478 a gallon. Natural gas for February delivery was flat at $4.839 per million British thermal units.
Demand forecasts
In its monthly report released Friday, the Paris-based IEA slashed its 2009 demand estimate by 1 million barrels a day. It also cut its 2008 demand estimate to 85.8 million barrels a day, a reduction of 70,000 barrels a day.
It's the first time in 26 years the IEA reported a consumption decline in two straight years. See full story.
Similarly, the U.S. Energy Information Administration said Tuesday that global oil consumption is projected to fall for a second year in 2009, down 800,000 barrels per day.
The Organization of Petroleum Exporting Countries forecast Thursday that global oil consumption will fall 200,000 barrels a day this year, following a 100,000 barrels decline in 2008.
Those bearish forecasts "highlighted frailties of oil fundamentals and limited" gains in oil Friday, wrote Nimit Khamar, an analyst at Sucden Financial Research.
Limiting oil's gain Friday, U.S. stocks rose on Friday, continuing the prior session's bounce back from its recent run down, with investors heartened by government moves to shore up two of the country's biggest banks. Stocks in Europe and Asia also moved higher.
Super contango
February oil futures fell Thursday to settle at $35.40, ending at the lowest level in one month on worries that the economic downturn will dampen energy demand. The March contract, however, ended at $43.54, more than $8 higher than the February contract.
Such a distance between contracts is unusual, sparking industry insiders to term the phenomenon "super contango."
The contango is providing investors an opportunity to arbitrage, by buying the February contract, taking the physical oil delivery and storing it, and at the same time selling contract under the higher-priced March contract. When that contract expires, they can deliver the oil they've had in storage since January.
Inventories at Cushing, Okla., the delivery point for futures traded on the New York Mercantile Exchange, had jumped to 33 million barrels last week, the highest since April, 2004, when the EIA started collecting Cushing data.
