Oil drops sharply as IEA expects inventories to rise

Tue Feb 10, 2015 5:31pm EST
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By Robert Gibbons

NEW YORK (Reuters) - Crude oil prices fell for the first time in four sessions on Tuesday after the International Energy Agency (IEA) warned that ample supplies will raise global inventories before investment cuts begin to significantly dent production.

Oil stockpiles in member countries of the Paris-based Organization for Economic Cooperation and Development (OECD) may approach a record 2.83 billion barrels by mid-2015, said the IEA, advisor on energy policy to a group of Western nations.

U.S. March crude futures CLc1 fell $2.84, or 5.37 percent, to settle at $50.02 a barrel, after dropping to $49.86.

Brent March crude LCOc1 fell $1.91, or 3.3 percent, to settle at $56.43 a barrel, having fallen as low as $56.11.

"It's the battle of the oil outlooks playing out here," said John Kilduff, partner at New York energy hedge fund Again Capital LLC. "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."

While the supply-demand balance in oil was expected to tighten by end-2015, the IEA cautioned that "downward market pressures may not have run their course just yet."

The IEA also predicted that demand for oil from the Organization of the Petroleum Exporting Countries (OPEC) will hold at 29.4 million barrels per day (bpd) this year, and said U.S. 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 bpd, up 430,000 bpd from an earlier forecast.   Continued...

A worker checks the valve of an oil pipe at an oil field owned by Bashneft company near the village of Nikolo-Berezovka, northwest from Ufa, Bashkortostan, January 28, 2015. REUTERS/Sergei Karpukhin