Futures dropped 4.3 percent to $85.04 a barrel in London and 4.6 percent to $81.84 in New York. Oil consumption will rise by about 650,000 barrels a day this year, 250,000 fewer than the prior estimate, the Paris-based agency said in a monthly report. U.S. crude supplies probably grew by 2.5 million barrels last week, according to a Bloomberg survey of analysts before a report from the Energy Information Administration on Oct. 16.
Oil futures have collapsed into bear markets as shale supplies boost U.S. output to the most in almost 30 years and global demand weakens. The biggest producers in the Organization of Petroleum Exporting Countries are responding by cutting prices, sparking speculation that they will compete for market share rather than trim output. Saudi Arabia won’t alter its supplies much between now and the end of the year, a person familiar with its oil policy said Oct. 3.
“Demand growth is far underperforming supply growth, and the market is adjusting to a new price level,” Greg Sharenow, executive vice president at Newport Beach, California-based Pacific Investment Management Co., who helps manage $26 billion of commodity investments, said by phone. “The International Energy Agency report added to the negative sentiment. I can see continued weakness.”
Brent for November settlement fell $3.85 on the London-based ICE Futures Europe exchange. It was the lowest close since Nov. 23, 2010. The volume of all futures traded was 64 percent above the 100-day average at 3:03 p.m. Prices have decreased 23 percent this year.
WTI for November delivery dropped $3.90 on the New York Mercantile Exchange to the lowest settlement since June 28, 2012. It was the biggest decline since Nov. 7, 2012. Volume was almost double the 100-day average. The U.S. benchmark grade closed at a $3.20 discount to Brent, compared with $3.15 at yesterday’s close.
The IEA reduced its estimate for demand growth this year for the fourth month in a row, meaning oil consumption will expand by about half the rate of 1.3 million barrels a day anticipated in June. The IEA cut its 2015 demand growth forecast by 100,000 barrels a day to 1.1 million. About 200,000 barrels a day less crude will be needed from OPEC this year and next than estimated previously, the agency said.
“This has been a momentous day,” Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania, said by phone. “The combination of the IEA report today and signs of dissension in OPEC have the market in full panic mode.”
OPEC, which supplies about 40 percent of the world’s crude, is raising output as its members compete for market share while seeking to meet increased domestic demand. The group pumped 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey. The gain was led by Libya, where output climbed by 280,000 barrels a day to 780,000, the fifth straight increase.
“The recovery in Libyan oil production has pushed up total OPEC output at a time when demand growth is slowing,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “OPEC has a serious problem.”
Iraq said on Oct. 12 that it will sell its Basrah Light crude to Asia at the biggest discount since January 2009, following cuts by Saudi Arabia and Iran. Middle East producers almost always follow the lead of Saudi Arabia, OPEC’s largest member when setting export prices. The Saudis need to deepen price cuts for Asia by between 70 cents and $1 a barrel to restore a competitive position against other Middle Eastern and West African suppliers, according to JPMorgan Chase & Co.
Saudi Arabia has to start worrying about the decline in oil prices, billionaire Prince Alwaleed Bin Talal Al Saud said in a letter to Saudi Oil Minister Ali al-Naimi on his website. The kingdom’s fiscal budget depends on oil for 90 percent of its revenues in 2014 and that’s a “disaster,” the prince said.
Oil ministers from Kuwait and Algeria have dismissed possible output cuts as the price slump prompted Venezuela to call for an emergency OPEC meeting. The group is scheduled to gather on Nov. 27 in Vienna.
Data in Europe today showed consumer prices in Sweden and Spain fell, U.K. inflation slowed to a five-year low and German investor confidence decreased for a 10th month.
The EIA, the Energy Department’s statistical arm, will release its weekly petroleum inventory report on Oct. 16 at 11 a.m. in Washington, a day later than usual because of yesterday’s Columbus Day holiday. Crude supplies rose 5.02 million barrels to 361.7 million in the week ended Oct. 3, the biggest increase since April, EIA data showed.
“The market isn’t expected to get any relief from Thursday’s inventory numbers,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “We’re looking for it to show a substantial build in crude supplies, coming on top of a 5 million-barrel build the previous week. There’s plenty of crude on hand.”
The report will probably show that gasoline stockpiles dropped by 1.55 million barrels in the week ended Oct. 10, according to the median estimate in the Bloomberg survey of 10 analysts. Inventories of distillate fuel, a category that includes diesel and heating oil, are projected to have slipped by 1.65 million barrels.
November gasoline futures slid 7.51 cents, or 3.3 percent, to close at $2.1802 a gallon on the Nymex. It was the lowest settlement since Nov. 23, 2010. Pump prices fell 1.3 cents to $3.186 a gallon nationwide yesterday, the least since Nov. 12, according to AAA, the largest U.S. motoring group.
Ultra low sulfur diesel for November delivery declined 8.46 cents, or 3.3 percent, to close at $2.4722 a gallon. It was the lowest settlement since Dec. 14, 2010.
“Lower fuel prices are beneficial for consumers,” Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant, said by phone. “The drop in prices, though, is a symptom of concern about the global economy. The consumer benefit will not ameliorate the economic slowdown.”
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