London: Oil slipped to around $112 a barrel on Thursday, extending the previous session’s sell-off, after a report from the International Energy Agency (IEA) added to concern about high prices and demand destruction.
The IEA, which advises 28 industrialized countries, cut its 2011 global oil demand growth forecast to 1.29 million barrels per day (bpd) from 1.43 million bpd, citing high prices and a weaker economic outlook for developed economies.
Brent crude fell 68 cents to $111.89 a barrel by 03:00 pm, adding to Wednesday’s $5 drop which was sparked by rising US gasoline inventories and falling domestic demand for the fuel. US crude lost $1.05 to $97.16.
“We clearly have seen demand growth slowing compared to last year’s level and we’re seeing it very much concentrated where the price feed through is most direct, notably in North America in terms of gasoline,” said David Fyfe, head of the IEA’s Oil Industry and Markets division.
A surprise increase in US gasoline inventories reported on Wednesday sent gasoline futures down almost 8% and fuelled the second rout in a week on commodity markets. US crude stocks also rose, government data showed.
The IEA said on Thursday gasoline pump prices of near $4 a gallon in the United States would prompt Americans to drive less this summer. Gasoline demand in the world’s top consumer usually peaks in the summer months.
“We believe gasoline demand will indeed disappoint this year -- rising seasonally but nonetheless declining on a yearly basis if retail prices remain at current levels,” the IEA said.
There could be further losses ahead, according to technical price charts. Brent could fall toward $105.21, according to Reuters analyst Wang Tao. It fell as low as $105.15 on 6 May.
“If you see it from a fundamental point of view, the price is still too expensive and far from an appropriate value,” said Ken Hasegawa, a commodity derivatives manager at Japan’s Newedge brokerage.
Oil had staged a modest bounce before the IEA report was released, clawing back about $1, as investors focused on strong demand growth in Asia.
“In the United States they are more concerned about the unexpected rise in gasoline inventories and the sputtering economic recovery,” said Gordon Kwan, head of energy research at Mirae Assets Securities in Hong Kong.
“But over in Asia we have a more bullish view. Even if we see weakening in Chinese industrial output, it is still very strong and we don’t believe in a hard landing.
Implied oil demand in China, the world’s second-largest crude consumer, reached its third-highest level on record last month, but year-on-year growth slipped to 8.8% after six consecutive months of double-digit gains.
Wednesday’s tumble in prices drove oil volatility to its highest close since mid-March as prices posted their second rout in less than a week.
Even after the latest decline, Brent crude is up 18% this year, having jumped to a 32-month high above $127 last month, driven in part by fighting in Libya and the loss of its crude exports.