Oil prices fell as much as 3 percent on Tuesday after both the world’s consumers and producers revised forecasts that signalled the global crude glut persisting for much longer than previously expected.
The International Energy Agency (IEA), which advises oil-consuming countries on their energy policies, said a sharp slowdown in oil demand growth, coupled with ballooning inventories and rising supply, means the market will be oversupplied at least through the first half of 2017.
The IEA’s comments follow a surprisingly bearish outlook from the Organization of the Petroleum Exporting Countries on Monday that also pointed to a larger surplus next year due to new fields in non-member countries and as US shale drillers prove more resilient than expected to cheap crude.
“It seems the situation has deteriorated strongly in the eyes of OPEC, as well as the IEA,” said Commerzbank head of commodities strategy Eugen Weinberg.
“I wouldn’t be surprised to see this price weakness continue for a while, because that was not on the cards, in our opinion.”
A stronger dollar also weighed on crude and other commodities denominated in the greenback, making them less affordable to holders of currencies such as the euro. US equity markets fell more than 1 percent, adding to the bearish sentiment.
Brent crude was down $1, or 2 percent, at $47.32 a barrel by 11:26 a.m. EDT (1526 GMT).
US West Texas Intermediate crude fell $1.25, or 2.7 percent, to $45.04.
Analysts expect US government data on Wednesday to show a stockpile build of 4.5 million barrels in crude last week. The American Petroleum Institute, a trade group, will release its own preliminary supply-demand report for last week at 4:30 p.m. (2030 GMT) on Tuesday.
Oil prices rose in the previous session after uncertainty over a potential US Federal Reserve rate hike in September weighed on the dollar.
Even so, expectations of US monetary tightening before the end of the year, along with the bleak demand outlook projected by the IEA, further diminished market optimism that the world’s largest oil producers might agree to freeze output when they meet for talks in Algeria on Sept. 26-28.
“The idea of an oil production freeze makes even less sense if demand falls apart while US monetary stimulus is being removed at the same time,” said David Thompson, executive vice-president at Powerhouse, a commodities-focused brokerage in Washington.