Oil sinks below $94 on global growth fears
BY MYRA P. SAEFONG AND CARLA MOZEE, MARKETWATCH
SAN FRANCISCO -- Oil futures fell below $94/bbl on Wednesday after the OECD cut its global growth forecast and the International Monetary Fund reduced its estimate for China's growth, feeding concerns over the outlook for energy demand.
Traders looked ahead to weekly reports that are expected to show an across-the-board decline in domestic petroleum supplies. They also searched for hints on what members of the Organization of the Petroleum Exporting Countries may decide to do with output targets at their meeting in Vienna on Friday.
Crude for July delivery fell $1.62, or 1.7%, to $93.39 a barrel on the New York Mercantile Exchange. Tracking the most-active contracts, futures prices were poised for their lowest close since May 1, according to FactSet data.
On Tuesday, prices saw a gain of 86 cents, or 0.9%, finding support from prospects for higher energy demand after confidence among U.S. consumers climbed to a five-year high.
But Wednesday saw "a real flip-flop in sentiment," said Matt Smith, a commodity analyst at Schneider Electric in Louisville, Ky. "The IMF's downward revision to China's growth prospects combined with fears" of the U.S. Federal Reserve removing stimulus and the European Central Bank Vice President Vitor Constancio saying the euro zone's situation "remains fragile."
The IMF's first deputy managing director, David Lipton, said Wednesday that the IMF cut its estimate for China's economic growth in 2013 and 2014 to 7.75%. It previously estimated growth of 8% for this year and 8.2% next year.
The oil market also digested a warning from the Organization for Economic Cooperation and Development. The OECD said that when the U.S. Federal Reserve and others start tapering their monetary-easing programs, that will likely cause spikes in government-bond yields and put growth in the global economy at risk. The OECD said the U.S. economy is still expected to grow, though at a slightly lower rate than previously thought. It predicts a rate of 1.9% in 2013, down from an earlier estimate of 2.0%.
The market will receive an update on U.S. petroleum supplies from the American Petroleum Institute at 4:30 p.m. Eastern. The Energy Information Administration will follow with its own supply data Thursday at 11 a.m. Eastern.
The data were delayed because of Monday's U.S. Memorial Day holiday.
Analysts expect to see a drawdown of 1.5 Bbbl in U.S. commercial crude-oil stocks for the week ended May 24, according to a survey of analysts conducted by Platts.
A drawdown, which is typically seen this time of year, would come as crude stocks stood at a lofty level of 394.6 MMbbl for the week ended May 17, a surplus of more than 9% to the EIA's five-year average, according to Platts.
Analysts polled by Platts also expect a weekly decline in gasoline stockpiles of 800,000 barrels, and a fall of 600,000 barrels in distillate supplies, which include heating oil.
On Nymex, June gasoline lost 5 cents, or 1.8%, to $2.80/gal, and June heating oil was off 3 cents, or 1.1%, at $2.88/gal. The June futures contracts expire at the Nymex close on Friday.
Natural gas for June delivery was down 8 cents, or 1.8%, at $4.10/MMbtu. The June contract will expire at Wednesday's close.
The EIA's report on weekly natural-gas supplies will be released as usual at 10:30 a.m. Eastern on Thursday. Prestige Economics is looking for a climb of 85 billion cubic feet.
The supply figures for oil will come before members of OPEC review production targets at their meeting on Friday. OPEC members are expected to maintain their supply target of about 30 million barrels a day.
The oil supply glut and advancements in technology to produce crude in the U.S. will probably have OPEC ministers on the defensive and they may see a need for a cut back in output quotas, said John Person, president of NationalFutures.com.
But Person said he sees that as just "rhetoric" and "words to ignore."
"These members will do what it takes to produce as much oil as the market will absorb at the best price possible," he said, noting that he sees a "strong potential for a decline" in crude-oil prices by mid-August to the $75- $80/bbl range for West Texas Intermediate.
OPEC's decision would come as London-traded Brent crude-oil prices have mostly traded at more than $100/bbl this year. On Wednesday, Brent crude oil for July delivery shed $1.51, or 1.5%, to $102.72 a barrel on ICE futures.
In a note dated Tuesday, Bank of America Merrill Lynch cut its global oil demand assumptions and lowered its Brent price forecasts.
It expects global oil demand to grow by 800,000 bopd in 2013, down from a previous forecast of 950,000 bopd because of slightly weaker-than-expected consumption in Europe and China. The bank also reduced its Brent forecast to $103 in the second half of 2013, from $111 prior, and the 2014 forecast to $105 from $112.
Dow Jones Newswires