MW: Oil near 2-year low as IEA cuts demand forecast
NEW YORK (MarketWatch) — The collapse in crude-oil prices continued Tuesday, with the U.S. benchmark hitting its lowest level since November 2012 after the International Energy Agency made a further cut to its forecast for demand growth.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX4, -1.07% traded at $84.63 a barrel, down $1.11 or 1.3%. November Brent crude LCOX4, -1.64% on London’s ICE Futures exchange, the global benchmark, dropped $1.63, or 1.8%, to $87.30 a barrel.
In its monthly report, the Paris-based IEA said it expects oil demand this year to rise by 700,000 barrels a day, down from its previous estimate of 900,000 barrels a day. At the same time, oil production rose by almost 910,000 barrels a day last month, according to IEA figures, boosted by rising production by the Organization of the Petroleum Exporting Countries, or OPEC, and non-OPEC producers alike.
“More supply and less demand make for a much lower oil price,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
Still, market participants argue the recent selloff is at or approaching overdone levels and has been much steeper than warranted by weak demand and supply fundamentals.
“The large downward move in oil over the past two weeks was mostly speculative, in our view. While the market remains oversupplied and lower OPEC production should be required, we see few signs of new deterioration in fundamentals,” Morgan Stanley analyst Adam Longson said in a report.
Physical oil market indicators also appear to be firming, Longson said, referring to the clearing up of surplus West African oil cargoes and rising refinery run rates in Asia and Europe.
He said OPEC is right to expect a material improvement in demand and wouldn’t be surprised “if the cartel waits to see how markets evolve this winter before making any hasty decisions.”
Oil markets are looking to the OPEC meeting in November for cues on oil supply levels, and recent price cuts by OPEC oil producers have driven some of the speculation regarding production levels.
