LONDON: Oil fell below $79 on Wednesday, after a report from the International Energy Agency (IEA) warned of risks to demand. Economic fears and a sharp fall in equities deepened bearish sentiment.
The IEA, energy adviser to 28 industrialised countries, slightly increased its forecasts for global crude demand for this year and next in its August report from the previous month. It warned, however, that if the global economy proved weaker than expected, any rise in fuel consumption could be wiped out.
Sabine Schels, energy strategist at Bank of America Merrill Lynch, said: "The report concurs with our view that global demand growth is slowing in the key economies, and that doesn't bode well. So the recovery is stalling, but it's unlikely that we will get a double-dip recession."
The IEA report comes ahead of US government data on oil stocks due at 1430 GMT, which often moves global prices by indicating demand in the world's largest oil consumer. A Reuters poll suggested the data will show that stocks of gasoline and other oil products have risen, suggesting weakness in product demand in the world's largest oil consumer.
But the same poll forecasts a fall in crude inventories. US crude for September delivery was down $1.45 at $78.80 a barrel at 1340 GMT. Front-month ICE Brent crude fell $1.30 to $78.30 a barrel. A rise in equity markets last week helped crude to rise above $80, according to analysts.
On Wednesday, Japan's Nikkei 225 ended sharply down, and European equities fell on fresh fears over the global economy, hitting sentiment towards oil.
The US government on Tuesday also modestly boosted its forecast for global oil demand growth this year and next, saying that developing countries would drive consumption despite a slower outlook for the US economy.
In China, an industry association forecast an 11 per cent growth in the country's apparent crude demand this year. However, in July the country's implied oil demand slowed as expected from double-digit growth in the first half as firms scaled back refinery output and crude purchases from June peaks. Economic growth in China is slowing slightly, although it remains robust as the government steers credit growth back to normal.
