Singapore: Oil slipped under $50 a barrel on Tuesday, extending its 4.2% fall overnight after the International Energy Agency slashed its demand forecast on expectations of another rise in US crude stocks.
As trading picks up after the Easter holiday, the market will seek confirmation of the IEA’s bearish forecast this week.
The US Energy Information Administration (EIA) releases its short-term energy outlook later in the day, which will have give an estimate of global and US oil demand for the year, while Opec publishes its monthly view on Wednesday.
By 8:15am, US crude for May delivery was down 60 cents at $49.45, after falling $2.19 to settle at $50.05 overnight. ICE Brent crude was down 8 cents at $52.06.
Oil prices have been stuck in a $47-$54-range for the past four weeks, having recovered from a low of $32.40 in December. They are still down almost $100 from a record high above $147 last July.
The IEA said on Friday world oil demand would fall by 2.4 million barrels per day (bpd) this year from 2008 to 83.4 million bpd, as the rate of contraction in fuel consumption reached levels last seen in the early 1980s.
“The IEA report is a wake-up call of sorts, and we will see a widening of the contango in the market. We’d probably see front-month crude trading down, deep into the $40s in the near term,” said Tony Nunan, assistant manager of risk management at Tokyo-based Mitsubishi Corp.
“But this is a two-tiered market - one that’s weak in the short term due to collapsing demand and high inventories, but stronger in the medium term, based on the belief that all the stimulus packages will probably get the economy out of its funk by year-end.”
The release of Producer Price Index (PPI) and retail sales for March at 6:00am, will offer more clues on the health of the US economy.
Economists in a Reuters survey forecast the PPI will stay flat, compared with a 0.1% increase in February, and retail sales to rise 0.3%, versus a 0.1% drop in the previous month.
The EIA’s monthly outlook is due at 6:00am after which US American Petroleum Institute (API) will unveil its weekly inventory data at 2:00am.
The preliminary forecast ahead of the weekly API/EIA inventory reports calls for a 2.2 million barrel increase in crude stocks, a 1.0 million barrel decline in distillate supplies and a 700,000 barrel drawdown in gasoline stocks.
On the supply front, Saudi Arabia will trim oil supplies to some of its Asian customers in May, and one European buyer suggested the world’s top exporter was concerned about high inventories.
Saudi Arabia has been largely responsible for Opec’s high level of compliance - estimated at 80% - with agreements to cut output by a total of 4.2 million bpd since September last year.
Iran’s Opec governor Mohammad Ali Khatibi said if oil demand continued to fall, the group might decide to further cut its oil output, but Qatar’s Oil Minister Abdullah al-Attiyah said it was “too early to react” to the IEA forecast.