(Bloomberg) -- Crude took a step back now that 2018 isn’t looking so hot anymore.
Futures slipped as much as 1.2 percent in New York. Hopes that a potential extension of OPEC’s supply curbs will help support the market next year were tempered by a monthly report Tuesday from the International Energy Agency that said 2017 price gains along with milder-than-normal winter weather are slowing demand growth.
“If you put two and two together, it shows that we are going to be a little bit oversupplied in 1Q,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by telephone referring to the IEA report. “Traders in the market are focusing on that right now. We rallied too far, too quick.”
Crude rallied above $57 a barrel in New York last week, largely due to tensions in the Middle East that increased the geopolitical risk premium and expectations that the Organization of Petroleum Exporting Countries will agree to an output-cut extension. That was before the IEA warned that the supply surge from U.S. shale oil and natural gas basins will beat the biggest gains seen in the history of the industry.
By 2025, the growth in American oil production will equal that achieved by Saudi Arabia at the height of its expansion, according to the agency.
“Some of the investors are getting a little bit skittish in terms of the impact on supply, particularly in North America, if we stay in this mid-$50 range,” Loewen said.
West Texas Intermediate for December delivery fell 49 cents to $56.27 a barrel at 9:44 a.m. on the New York Mercantile Exchange. Total volume traded was about 15 percent below the 100-day average.
See also: Brent Crude Is 550 Million Barrels Long and Suddenly Weakening
Brent for January settlement dropped 55 cents to $62.61 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.16 to January WTI.
The IEA reduced its demand estimate for next year by 200,000 barrels a day to 98.9 million a day, according to projections in its report. Forecasts for demand growth next year also fell by 100,000 barrels a day to 1.3 million a day.
“The market balance in 2018 does not look as tight as some would like, and there is not in fact a new normal” that would buoy prices above $60, said the Paris-based agency.
U.S. crude inventories probably slid by 3.1 million barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report on Wednesday. The industry-funded American Petroleum Institute’s report is scheduled to release its stockpile data on Tuesday.
Oil-market news:
- OPEC and allied oil producers should extend their production cuts beyond March to help re-balance the market, the United Arab Emirates said.
- Saudi Arabia is retreating from the U.S. oil market after cutting exports to a 30-year low, allowing Iraq to expand its share.
- The oil industry isn’t investing enough in new production capacity, which will lead to inventories falling even more next year, Wintershall CEO Mario Mehren said in Abu Dhabi.
- Oil producers discouraged by the rising cost of accessing the vast deposits of the Permian Basin in Texas are sneaking into a geological back door, through neighboring New Mexico.