WTI Extends Drop From 22-Month Low as Demand Slows

West Texas Intermediate extended its rout from the lowest price in 22 months after the International Energy Agency said oil demand will expand this year at the slowest pace since 2009. Brent slid to a four-year low in London.

Futures dropped as much as 1.5 percent in New York, the fifth decline in six days. Oil consumption will increase by about 650,000 barrels a day this year, 250,000 below the previous estimate, the Paris-based agency said in its monthly market report. U.S. crude stockpiles probably expanded by 2.5 million barrels to a two-month high last week, according to a Bloomberg News survey before a report from the Energy Information Administration on Oct. 16.

Oil futures have collapsed into bear markets as shale supplies boost U.S. output to the most in almost 30 years and global demand weakens. The biggest producers in the Organization of Petroleum Exporting Countries are responding by cutting prices, sparking speculation that they will compete for market share rather than reduce supply. Saudi Arabia won’t alter its supplies much between now and the end of the year, a person familiar with its oil policy said on Oct. 3.

“The IEA report adds to the current pressure on prices and on OPEC,” Ole Hansen, head of commodity strategy at Copenhagen-based Saxo Bank A/S, said by e-mail. “OPEC are not showing much reaction on the outside and the question still remains as to whether there is an overriding motive behind the lack of intervention.”

Forecast Lowered

WTI for November delivery slid as much as $1.28 to $84.46 a barrel in electronic trading on the New York Mercantile Exchange and was at $84.62 at 1:09 p.m. London time. The contract lost 8 cents to $85.74 yesterday, the lowest close since December 2012. The volume of all futures traded was about 35 percent above the 100-day average for the time of day. Prices have decreased 14 percent this year.

Brent for November settlement fell as much as $1.69, or 1.9 percent, to $87.20 a barrel on the London-based ICE Futures Europe exchange. It dropped $1.32 to $88.89 yesterday, the lowest since December 2010. The European benchmark crude traded at a premium of $2.73 to WTI on ICE, compared with $3.15 yesterday.

The IEA reduced its estimate for demand growth this year for the fourth month in a row, meaning oil consumption will expand by about half the rate of 1.3 million barrels a day anticipated in June. About 200,000 barrels a day less crude will be needed from OPEC this year and next than estimated previously, the agency said.

Stock Build

“Since June the IEA has cut in two their oil demand growth expectation for 2014,” Olivier Jakob, managing director of Zug, Switzerland-based consultant Petromatrix GmbH, said in a report. OPEC maintaining its current production level “would translate into a major stock-build in the first half of 2015 of 2 million barrels a day.”

OPEC, which supplies about 40 percent of the world’s crude, is raising output as its members compete for market share while seeking to meet increased domestic demand. The group pumped 30.47 million barrels a day in September, the most since August 2013, its monthly report on Oct. 10 showed.

Iraq said on Oct. 12 that it will sell its Basrah Light crude to Asia at the biggest discount since January 2009, following cuts by Saudi Arabia and Iran. Middle East producers almost always follow the lead of Saudi Arabia, OPEC’s largest member when setting export prices. The Saudis need to deepen price cuts for Asia by between 70 cents and $1 a barrel to restore a competitive position against other Middle Eastern and West African suppliers, according to JPMorgan Chase & Co.

OPEC Cut

Oil ministers from Kuwait and Algeria have dismissed possible output cuts as the price slump prompted Venezuela to call for an emergency OPEC meeting. The group is scheduled to gather on Nov. 27 in Vienna.

While producers would like higher prices, there’s “no room” for them to achieve that by reducing supply, Kuwait’s Oil Minister Ali Al-Omair told the official Kuwait News Agency yesterday.

U.S. crude output climbed to 8.88 million barrels a day in the week ended Oct. 3, the most since March 1986, according to the EIA. Gasoline and distillate inventories, which include heating oil and diesel, probably shrank last week, according to the median estimate in the Bloomberg survey of eight analysts before data from the Energy Department’s statistical arm.

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