Oil prices shed over $2 per barrel on Friday as the OPEC oil producers cartel fired a warning shot over the level of global demand.
It claimed that demand growth has fallen short of expectations in the early months of the year, and while it is sticking to its current forecasts it warned those forecasts may be downgraded in future.
OPEC said, however, that it expects demand to increase in the second half of 2013. And it currently forecasts demand growth in the order of 800,000 barrels per day over the course of the year.
A stronger US dollar, ahead of the G7 meeting in Buckinghamshire, has also pressured oil and other dollar denominated commodities.
In London trading on Friday, Brent crude slumped US$1.93 changing hands at US$102.50 meanwhile West Texas Intermediary fell US$2.40 to US$94.20.
Question marks remain over the demand picture in America and China - the world's number one and number two oil consumers respectively. And the market remains fixated on the back and forth from one set of economic statistics to another.
This week's US crude inventory and employment figures were an influence.
The fact that America has more than enough oil supplies is keeping a lid on oil prices.
Even the news that employment is on the rise in the world’s largest oil consumer failed the lift spirits.
Indeed, new figures from the US Labor Department revealed unemployment claims are around five-year lows, and sackings are back at pre-crisis levels.
This comes after Wednesday's weekly stockpile report showed that despite a smaller than expected rise, at 395.5mln barrels, the surplus is at record highs. Oil investors will remain focussed on the US, and the level of oil demand, in the weeks ahead as the summertime ‘driving’ season gets underway.
Elsewhere, in the stock market, stockbroker JP Morgan Cavenove put three oil majors in the frame as takeover targets.
It says BP, Total and ENI could be ideal purchases for ambitious and cashed up national oil companies (NOCs).
The American bank points out the amount spent by these NOCs on acquisitions so far this year has already exceeded last year’s total.
“We see a hungry set of increasingly aggressive and ambitious buyers whose funding is not oil price dependent, but whose energy security needs rise with the oil price, juxtaposed against some very low big oil proven reserve valuations,” JMPC said in a note to clients.
It points out that British major BP trades at just US$10.30 per barrel of oil equivalent, which is a 34% discount to the sector average.
Deutsche Bank, meanwhile, published a note this week focussing on exploration and the current pessimism among investors.
The market feels “distinctly glass half empty” when it comes to assessing the potential of London-listed oil explorers, according to the German investment bank.
The “clear preference” in 2013 is for asset-backed plays rather than those stocks that live and die by the drillbit, it added in a recent note to clients.
“The market feels distinctly glass half empty towards E&Ps, manifested in lacklustre sector performance (absolute and relative) so far in 2013,” Deutsche went on.
“The outlook for the key macro drivers of share prices and sentiment is not promising.
“Notwithstanding recent weakness, oil prices appear range bound in the near-term.
“The lack of high-profile M&A is an ongoing concern and without the ability to mark to market, valuations retain a high degree of subjectivity.”
