Crude oil prices dropped sharply for the first time in four sessions after the IEA warned that the ample supplies might raise global inventories before the cuts in investment begin to dent production significantly.
Oil stock piles in member countries for the Economic Cooperation and Development (OECD) may approach a record 2.83 billion barrels by mid 2015, as reported by the IEA, advisor on the energy policy to a group of Western nations.
The Wall Street Journal reported that US oil for March delivery dropped 5.4% or $2.84 to $50.02 per barrel on the New York Mercantile Exchange. The global benchmark, Brent, dropped 3.3% or $1.91 to $56.43 per barrel on the ICE Futures Europe.
Reuters quoted John Kilduff, partner at energy hedge fund Again Capital LLC said, “It’s the battle of the oil outlooks playing out here. The IEA report is a good reminder that there’s still a lot of supply to come and it doesn’t give much hope for the bulls who say we’ve hit bottom and are now on the way up.”
The IEA cautioned that “downward market pressures may not have run their course just yet” even thought the supply-demand balance in oil is expected to tighten.
The IEA predicted that the demand for oil from the Organization of Petroleum Exporting Countries (OPEC) will hold 29.4 million barrels a day this year and said US shale oil output growth will pause before regaining momentum.
The IEA’s outlook was more bearish than OPEC’s monthly report on Monday which forecast 2015 demand for oil from its members will rise to 29.2 million barrels per day, up 430,000 barrels per day from the earlier forecast.
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