Oil prices slip after IEA downgrades global demand


July 15, 2010 Updated Apr 13, 2009 at 7:01 PM CDT

Crude oil prices slid Monday after the International Energy Agency lowered its projection of global demand for this year.

On the New York Mercantile Exchange (NYMEX), the main futures contract, light sweet crude for May delivery, settled at 50.05 dollars a barrel, a drop of 2.19 dollars from its Thursday close.

In London, Brent North Sea oil for May delivery fell 1.92 dollars to 52.14 dollars per barrel.

On Thursday the New York futures contract had soared 2.86 dollars.

Crude prices were boosted at the end of last week by a Wall Street rally following US banking giant Wells Fargo's projection of a "record" three-billion-dollar profit in the first quarter. The announcement sent shares of major banks soaring.

The markets were closed Friday to mark the Easter Sunday holiday.

The New York contract fell Monday to an intraday low of 48.84 dollars.

"Oil prices have moved lower ... as participants react to IEA's forecast, released on Friday, which lowered demand estimates, again, by another 1MM bpd (one million barels per day)," said Mike Fitzpatrick at MF Global.

The IEA said Friday it now expected the global economy to contract 1.4 percent in 2009 instead of a modest expansion and slashed global demand by one million barrels per day to 83.4 million barrels per day, the lowest level since 2004.

Fitzpatrick noted that price levels are a function of whether participants choose to concentrate on fundamentals or their hopes for a recovery.

"About the only thing that can be said with any degree of certainty right now is that economic deterioration appears to be continuing, but at a slower rate, perhaps," he said.

Ellis Eckland, an independent analyst, said that oil prices had firmed in recent weeks thanks to stock market rallies, a barometer on investor hopes for an economic recovery and thus on demand for commodities.

"We had a strong rally on Thursday, and so we are giving back a portion of that rally," Eckland said, pointing to "a very high correlation" between the stock market and oil prices.

US stocks, which rose for five consecutive weeks, closed narrowly mixed Monday.

"Right now oil cares more about Wall Street then it does about Main Street," said Phil Flynn at Alaron Trading.

The decline in oil prices was in tandem with a weaker dollar as investors awaited a flurry of US corporate earnings.

Jessica Hoversen at MF Global said the dollar's decline Monday was "mainly a technical move."

"You can see a lot of positioning ahead of the week" in which the corporate earnings season swings into gear, she said.

OPEC may cut oil production again if global demand for crude continues to fall in the near future, Mohammad Ali Khatibi, Iran's representative in the group, said Monday.

"If demand continues to fall until the next meeting of OPEC, a further output cut is possible," Khatibi was quoted as saying by Iranian daily Hamshahri.

The next meeting of the Organization of the Petroleum Exporting Countries (OPEC) is on May 28.

OPEC has reduced its oil production target by an overall 4.2 million barrels per day since September to 24.84 million bpd, the lowest level since just after the US-led invasion of Iraq in 2003.

Iran is the second-largest crude producing member, after Saudi Arabia, of OPEC, the cartel that pumps 40 percent of the world's oil.

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