London: Oil slipped towards $35 a barrel on Friday after the International Energy Agency cut its forecast for world oil demand this year sharply and two of the biggest US banks reported massive losses.
The IEA said in its monthly oil report that world oil demand would contract as the economic slowdown eroded consumption. The agency revised its estimate for 2009 demand down by 940,000 barrels per day (bpd) to 85.3 million bpd - a fall of about 500,000 bpd year-on-year.
Bank of America, which recently absorbed Merrill Lynch, and Citigroup both reported huge losses for their fourth quarters on Friday, including billions of dollars of writedowns from exposure to debt and real estate markets.
US light crude for February delivery was down 7 cents at $35.33 a barrel by 1120 GMT, after hitting a low of $34.77. The contract, which expires on Tuesday, touched a low of $33.20 on Thursday, the weakest in nearly a month.
London Brent crude for March was up 18 cents at $47.86, maintaining an unusual premium to the US benchmark due to growing US stockpiles and weakening US oil demand.
The price of oil for delivery in February has fallen about 14% so far this week, as a string of dismal figures from major economies stung investor confidence and portended further weakness in oil demand in months ahead.
“Global oil demand is reducing at an alarming rate,” said Rob Laughlin, senior oil analyst at MF Global in London.
In its report, the IEA said Chinese oil demand would grow at its slowest rate in eight years, rising just 90,000 bpd in 2009 as its GDP growth slows to 6.5%.
The gloomy global economic outlook has also prompted Opec to forecast a fall of 180,000 barrels per day (bpd) in world oil demand this year.
The producer group, which has already cut 4.2 million bpd in supply from the world market since September, could quickly deepen output cuts if needed, Opec President Botelho de Vasconcelos has said.
Investors will be keenly watching US CPI data, due at on Friday, which are expected to show a drop of 0.9% in December, while a preliminary index of January consumer sentiment in January is expected to erode to 59.0 from 60.1 in December.
The financial crisis has forced a growing number of major economies into recession. Energy consumption has waned sharply, prompting oil prices to tumble by more than $110 since a record peak in July.
Analysts said the glut in global crude supplies was likely to cap oil prices for the rest of this year.