Weak IEA outlook, US glut worries sink oil prices

OPEC countries are complying with a landmark deal to reduce a worldwide glut in oil (AFP Photo/Prakash Singh)

New York (AFP) - Oil prices slumped Tuesday after the International Energy Agency issued a downbeat global market outlook and traders braced for a further increase in record US crude-oil stockpiles.

US benchmark West Texas Intermediate for March delivery tumbled $2.84 to close at $50.02 a barrel.

The global benchmark, Brent North Sea crude for March, settled at $56.43 a barrel in London trade, down $1.91 from Monday's closing level.

Citing a major shakeup in the oil markets, the IEA said in its five-year forecast that prices will recover from current levels but remain considerably below the $100-plus per barrel price of last June.

"The global oil market looks set to begin a new chapter of its history, with markedly changing demand dynamics, sweeping shifts in crude trade and product supply, and dramatically different roles for OPEC and non-OPEC producers in regulating upstream supply," the IEA said.

It added that it sees market rebalancing occurring "relatively swiftly", with increases in inventories halting around mid-year and the market tightening.

"Though the IEA trimmed its long-term supply forecasts, it cut its demand estimates, too, and warned that lower oil prices will not necessarily boost demand growth as strongly as it might be expected," said Fawad Razaqzada at Forex.com trading group.

Kyle Cooper at IAF Advisors said the bearish IEA report showed "the rebalancing of crude is not going to get solved in the next couple of months."

Cooper said the market also was preparing for "very, very large crude and petroleum builds" in the United States in the next few weeks.

The US Department of Energy's weekly petroleum report due Wednesday is expected to show a 3.6 million barrel increase in crude stockpiles, according to a Bloomberg News analyst poll.

At more than 413 million barrels, US crude stocks are already at their highest level on record.

US oil production is near its all-time highs, thanks to a boom in shale production. The DoE reported Tuesday that production averaged 9.2 million barrels per day in January.

It predicted US crude output would rise to 9.3 million barrels a day in 2015 and 9.5 million in 2016.

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