Oil dropped for a second day as the International Energy Agency cut its demand estimate and U.S. inventories were expected to reach a three-month high.
Prices fell 0.2 percent after the IEA lowered its forecast for the fourth quarter for a second time, citing weakness in Europe’s economy and disruption to U.S. fuel delivery by Hurricane Sandy. U.S. oil inventories probably rose to 377.3 million barrels last week, according to a Bloomberg survey. Oil erased losses earlier as U.S. stocks rallied.
“The fundamentals are weak and you’ll see higher inventories in the U.S.,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are going to see prices drifting downward.”
Crude for December delivery slid 19 cents to settle at $85.38 a barrel on the New York Mercantile Exchange after climbing to $85.95. Prices are down 14 percent this year.
Brent for December settlement declined 81 cents, or 0.7 percent, to $108.26 a barrel on the London-based ICE Futures Europe exchange.
Global oil consumption this quarter will average 90.1 million barrels a day, 0.3 percent less than previously forecast, the Paris-based IEA said today in a monthly report. The energy adviser to 28 industrialized nations trimmed the full-year forecast to 89.6 million.
U.S. oil supplies probably rose 2.5 million barrels last week to the most since July 20 as production climbed and two refineries in New Jersey remained shut after Sandy, according to the median of nine analyst estimates before an Energy Department report on Nov. 15. Output reached 6.68 million barrels a day in the week ended Nov. 2, an 18-year high.
“The IEA report is a bearish fundamental factor and another marker that shows oil is going to struggle,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Inventory data this week won’t be supportive.”
Gasoline supplies probably slid 500,000 barrels and inventories of distillate fuel, a category that includes diesel and heating oil, probably dropped 900,000, the survey showed. The Energy Department report will be released a day later than normal because of yesterday’s Veterans Day holiday.
“The market is very well-supplied,” Abdalla El-Badri, OPEC’s secretary-general, said today at the Oil & Money conference in London. “There is no doubt about it. Stocks are very high.”
The Organization of Petroleum Exporting Countries will need to supply 30 million barrels a day this quarter, 500,000 barrels a day less than previously projected because of the weaker demand outlook and expectations for increased non-OPEC supply, the IEA said.
Crude’s settlement price has ranged from $84.44 to $86.07 for the past week. The last settlement above $90 was Oct. 19.
“We are seeing some range trading today,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “There could be some swings going forward.”
Oil also fell as leaders disagreed over a target for Greece’s debt reduction and President Barack Obama prepared for talks to avert a so-called fiscal cliff. Without legislation, a combined $607 billion in tax increases and spending cuts will take effect starting in January.
“The fiscal cliff and worries about Greece are still keeping us bearish,” Lynch said.
Futures rose as much as 0.4 percent in early trading as U.S. equities gained after Home Depot Inc.’s earnings beat forecasts. The Standard & Poor’s 500 Index increased 0.2 percent as the Nymex floor closed.
“The markets are just following the equities,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.
Electronic trading volume on the Nymex was 700,607 contracts as of 3:07 p.m. Volume totaled 548,296 contracts yesterday, 4.8 percent above the three-month average. Open interest was 1.6 million.