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Crude prices under pressure from economic strain

The lack of economic growth will limit oil demand growth, says IEA

Oil futures traded in a narrow range in May and fell in early June because of an “anaemic economic outlook”, the International Energy Agency (IEA) said.

On 1 July, Brent crude was trading just under $103/b, while WTI was around $97/b.

The IEA said it expects global oil demand to grow by “a somewhat muted” 785,000 b/d this year, reaching 90.6 million b/d. This is 75,000 b/d lower than the agency’s previous forecast, mainly because of lower Russian consumption, the IEA said.

Lacklustre economic growth will continue to limit oil demand growth, with declines still expected in many OECD countries, according to the IEA. 

In early June, the International Monetary Fund cut its economic growth forecast for China, the world’s biggest oil consumer, to 7.75%. This is down from the previous forecast of 8% and is the country’s lowest rate in 13 years. Lower than expected growth led the IEA to trim its oil demand forecast for the country.

Deutsche Bank said in a 1 July research note that it expects crude prices to average around $107/b in the second half of 2013, as global economic growth is expected to improve from the first half of the year. The bank has lowered its forecast from $115/b because of a combination of weak economic growth and increased non-Opec supply, mainly from the US.

Deutsche Bank expects the spread between Brent and WTI futures to remain at around $10/b in the second half of 2013. The bank said this will widen to around $15/b next year as US output of light, sweet crude increases.

The IEA said it expects 9.5m b/d of new crude distillation capacity to come on stream between 2013 and 2018. In a climate of sluggish demand this could put pressure on refining margins and increase crude stockpiles, the agency said.

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