Crude tumbles 20% since June to reach four year lows
Prices have taken the hit as plentiful supply and weak growth take toll
Crude oil prices tumbled to four-year lows in mid-October as ample global supply, slowing demand and a strong US dollar all weighed on values. Brent and WTI were trading around $85.56 a barrel ($/b) and $82.65/b respectively on 20 October, having fallen by more than 20% since June.
On 16 October Brent fell to a four -year low of $82.93/b as concerns over slowing global demand growth amid ample supply weighed on futures markets. WTI also fell to $79.78/b on 16 October, a level not seen since June 2012.
The International Energy Agency (IEA) cut its forecast for global oil demand for this year by 200,000 barrels a day (b/d), to 92.4m b/d, because of expectations of weaker economic growth. Annual demand growth for 2014 is now expected to be around 0.7 million b/d. This is the slowest rate of increase since 2009.
The IEA said the cut was due to the International Monetary Fund (IMF) lowering its forecast for global economic growth by 0.1% and 0.2% respectively for 2014 and 2015. The IMF expects global GDP growth to be 3.3% this year and 3.8% in 2015. The revisions have been driven by expectations of slower economic growth in Europe, China, Brazil and Russia.
Global oil demand growth is still expected to accelerate in 2015 albeit at a slower rate, the agency said, adding it expects to see it increase by 1.1m b/d next year, rather than by a previously expected 1.2m b/d. The new forecast puts global oil demand at 93.5m b/d as GDP growth improves. Non-OECD economies are expected to drive the growth.
The IEA cut its global oil demand estimate for the second quarter of 2014 by 100,000 b/d to 91.5m b/d. This was because of particularly weak consumption in OECD Europe, OECD Asia Oceania and China. The IEA said the 100,000 b/d demand cut in the second quarter of 2014 came as a particular surprise.
However, it added that supply growth was a bigger factor driving prices down than weaker demand growth. September’s 2.8m b/d increase in global output, compared to year earlier levels, was “staggering”, as Opec’s output returned to growth for the first time in around two years.