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Crude prices continue to fall below $100 a barrel

Oil prices continued their decline into September, with Brent crude falling well below the $100 a barrel (/b) mark and WTI trading below $95/b

Surging US unconventional production and robust Opec output, led by Saudi Arabia, has helped to offset concerns arising from persistent violence and production disruptions in Iraq, Libya and elsewhere.

Yet the International Energy Agency (IEA) also pointed to slowing oil demand as playing an important role in lower oil prices. “The recent slowdown in demand growth is nothing short of remarkable,” the IEA said in its September monthly oil report.

The IEA said that demand growth had slowed to less than 0.5 million barrels a day (b/d) year on year, the slowest rate in two and a half years. The slowdown led the IEA cut its demand growth forecast for 2014 by 150,000 b/d, to 0.9m b/d.

China’s slowing economy has seen the country’s crude demand slump, with consumption growth now expected to be just 2.4% this year, compared to annual growth of around 5% during the boom years. Demand growth could fall below 2% if an expected rebound in demand in the second half of the year fails to materialise.

Europe’s stagnant economies have also contributed to lower-than-expected demand, as the IEA reduced its second quarter estimates for Germany, the UK, Italy and France. “The macroeconomic malaise experienced across much of Europe recently has been the dominant downside influence,” the IEA said.

With lower-than-expected demand and strong US production growth, eyes have turned to Opec. “The resolve from individual Opec members, and the pace of their reactions looks set to be tested over the coming months as they choose to collectively defend $100/b or individually maintain market share,” analysts at Barclays, an investment bank, said.

Saudi Arabia cut its production by around 400,000 b/d in August in response to lower prices, but other Opec members don’t appear to have followed suit. Opec output was 30.31m b/d in August, down by 130,000 b/d from the previous month, but still higher than the group’s 30m b/d quota. Libyan volumes continued to recover, with production rising to 530,000 b/d in August.

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