Oil prices tumbled on Wednesday, from Tuesday’s slide after the International Energy Agency cast doubts over the past months’ narrative of tightening fuel markets.
Brent crude futures were at $61.47 per barrel down 74 cents, or 1.2 percent from their last close. U.S. West Texas Intermediate (WTI) crude was at $55.10 per barrel, down 60 cents, or over 1 percent.
The price falls mean that crude prices are now down by around 5 percent since hitting 2015 highs last week, ending a 40-percent rally between June and early November.
“Crude oil prices fell sharply after the IEA raised doubts about the outlook for 2018,” ANZ bank said on Wednesday.
The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd in 2017 and 1.3 million bpd in 2018.
“The oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18,” the agency said.
The demand slowdown could mean world oil consumption may not, as many expect, breach 100 million bpd next year, while supplies are likely to exceed that level.
The IEA report countered the Organization of the Petroleum Exporting Countries, which just a day earlier said 2018 would see a strong rise in oil demand. On the supply side, rising U..S. output also pressured prices.
Greg McKenna of futures brokerage AxiTrader said prices were dragged down as “current demand will fall and longer term the growth of U.S. oil production will eclipse anything we’ve seen before – including the Saudis and Russians”.
U.S. oil production has already increased by more than 14 percent since mid-2016 to 9.62 million bpd and is expected to grow further.
The IEA said non-OPEC production will add 1.4 million bpd of additional production in 2018. The IEA’s outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue.
OPEC and some non-OPEC producers including Russia have been withholding production this year to end years of oversupply. The deal expires in March 2018 but OPEC will meet on November 30 to discuss policy, and it is expected to agree an extension of the cuts.
Further down the line, analysts said the oil industry also faced difficult conditions.
“On global oil demand, longer term questions persist around the driving forces, with the oil market contending with deindustrialisation, a global reduction in carbon emissions and an increasing shift to renewable technologies,” said Graham Bishop, investment director at Heartwood Investment Management.