Oil fell on Tuesday following a series of gloomy predictions on demand growth that suggested the global overhang of unused inventories may persist for much longer than investors anticipate and temper any pick-up in price.
This contrasts with the agency’s last forecast a month ago for supply and demand to be broadly in balance over the rest of this year and for inventories to fall swiftly. The IEA’s latest comments follow a surprisingly bearish outlook from OPEC the day before.
Brent crude futures were trading down $1.06, or 2.2 percent, at $47.26 per barrel at 6:11 a.m. (1011 GMT).
U.S. West Texas Intermediate futures fell $1.14, or 2.5 percent, to $45.15 a barrel.
“It seems the situation has deteriorated strongly in the eyes of OPEC as well as the IEA,” Commerzbank head of commodities strategy Eugen Weinberg said.
“I wouldn’t be surprised to see this price weakness continue for a while right now, because that was not on the cards, in our opinion.”
Upbeat Chinese data on industrial output growth for August failed to lift oil prices as the crude market remained in a profit-taking mode, traders said.
China’s industrial output grew the fastest in five months as demand for products from coal to cars rebounded thanks to higher government spending and a year-long credit and property boom.
Speculators in U.S. and Brent crude futures took an axe to their long positions in the latest week, cutting the combined net speculative length in the two contracts by 80 million barrels, according to PVM Oil Associates.
“Given the bearish fundamental backdrop, yesterday’s strength is not expected to be long-lived. Maybe this is what we are already seeing this morning with the two main crude oil futures contracts trading … lower,” PVM Oil Associates strategist Tamas Varga said in a note.
“As for today and tomorrow, all eyes will be on the weekly statistics on U.S. oil stocks to see whether last week’s huge fall in crude oil inventories was just a one-off.”
U.S. crude inventory data is due on Tuesday and Wednesday.
A Reuters poll forecast U.S. commercial crude oil stocks likely rose last week after marking the largest plunge since 1999 in the previous week.
Oil prices fell in early trade on Tuesday on concerns over increased drilling in the United States and as investors took profits after oil prices rose close to 1 percent in the previous session.
Traders said the price falls on Tuesday were an indication that increasing oil drilling activity in the United States was still a concern even as crude prices closed higher on Monday because of a weaker dollar.
“People are seeing that rally we had on a very big decline in (U.S.) inventories last week is a bit of a selling opportunity,” said CMC Market chief market analyst Ric Spooner.
Oil’s 4 percent price decline since Sept. 8 partly reverses a 10 percent rally early in the month, which was fuelled by speculation that oil exporters could cap production.
