Oil prices fall on World Bank outlook despite IEA projection

12:24 11 June in Latest News

Oil prices fell on Thursday due to a stronger dollar and a gloomy economic outlook from the World Bank, while a bullish report about global demand from the International Energy Agency (IEA) failed to dispel concerns about a supply glut.

In its twice-yearly Global Economic Prospects report, the World Bank predicted the global economy would expand by 2.8 per cent this year, below its 3 per cent outlook in January, with India recording the biggest growth of major economies for the first time, ahead of slowing China.

Meanwhile the IEA, which co-ordinates energy policy for industrial nations, raised its projection for global oil demand growth in 2015 by 280,000 barrels per day (bpd) to 1.40 million bpd, bringing demand this year to almost 94 million bpd.

The agency said “unexpectedly strong global oil demand growth” had been supporting oil prices and raised its estimate for world demand for crude from OPEC this year.

Brent crude oil for July shed 51 cents, to trade at $65.19 (U.S.) a barrel by 1035 GMT. U.S. crude was down 60 cents at $60.83 a barrel.

Michael Hewson, chief markets analyst at CMC Markets, said a stronger U.S. dollar and persistent oversupply of crude had pushed prices down.

The U.S. dollar rose by 0.4 per cent against a basket of currencies, recovering from a decline to a three-week low.

A stronger dollar makes dollar-priced commodities more expensive for buyers using other currencies, and tends to weigh on oil prices.

Oil prices had drawn support on Wednesday from big falls in U.S. stocks as the U.S. oil market has gradually tightened after many months of heavy oversupply. However the rally on the data was short-lived.

“The market continues to be oversupplied relative to demand. The fact that oil prices were unable to rally significantly on that number suggests we are in a broad range. The bottom of the range for Brent is about $60 a barrel, and the top of the range is about $67-$68 a barrel,” Hewson said.

Traders also said Thursday’s IEA report offered few surprises.

“This is in line with the view that the global economy is improving and by year-end these forecasts are likely to be even stronger as positive price effects from lower oil prices feed into a better economic outlook and higher oil demand,” said Harry Tchilinguirian, head of commodity markets strategy and oil strategy at BNP Paribas.

(Source: The globe and mail)