Crude Oil Extends Decline After IEA Forecasts Slump in Demand

April 14 (Bloomberg) -- Oil fell below $50 a barrel, extending yesterday’s 4.2 percent loss, after the International Energy Agency forecast that 2009 demand may slump to the lowest level in five years amid the global economic recession.

Consumption will decline 2.4 million barrels a day this year, about the same amount that Iraq produces, to 83.4 million barrels a day, according to the IEA report on April 10. U.S. crude oil supplies are at their highest since July 1993, the Energy Department said on April 8.

“When the IEA makes a big cut in its demand forecast, the oil market has to notice,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “It’s hard to sustain any rallies when demand is down.”

Crude oil for May delivery fell 27 cents to $49.78 a barrel at 8:21 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 12 percent so far this year after tumbling 54 percent in 2008. Oil fell $2.19 yesterday to settle at $50.05 a barrel, in the biggest drop on the Nymex since March 30.

Oil demand will shrink by 2.8 percent this year as worldwide gross domestic product declines by 1.4 percent, according to the IEA, the adviser to 28 consuming countries. The organization had until now assumed the global economy would expand in 2009. The report was issued April 10, when international financial markets were closed for Good Friday.

“We are a long way from seeing a significant rise in demand,” Stephen Schork, president of Schork Group Inc., of Villanova, Pennsylvania, said in an interview with Bloomberg Television. “We could be in the $50 range for quite some time, demand is that poor.”

Pace of Contraction

The pace of contraction is close to early 1980s levels, although a repeat of four consecutive annual declines seen during that period is unlikely, the Paris-based agency said in its monthly report. The recovery of both the economy and energy demand will be deferred until 2010, according to the IEA.

Iran’s OPEC governor said the producer group may cut oil output again when ministers next gather if demand falls further, Hamshahri, an Iranian newspaper, reported. The Organization of Petroleum Exporting Countries is scheduled to hold its next meeting in Vienna on May 28.

“If demand continues to decrease until the next meeting of the group, a further output cut will be possible,” Mohammad Ali Khatibi was quoted as saying by the Tehran-based newspaper.

OPEC reduced daily output targets by 4.2 million barrels since September to prevent a glut and bolster prices.

“Data such as the IEA’s downgrade of expected demand show the commodities rally we’ve seen recently may have short legs,” said Ronald Smith, chief strategist at Alfa Bank in Moscow. “The global economy is only showing the most tentative signs of having found a bottom, and those signs may yet prove false.”

U.S. Inventories

U.S. crude-oil supplies increased 1.65 million barrels to 361.1 million in the week ended April 3, the report from the Energy Department showed. Supplies probably rose 2 million barrels last week, according to the median of 10 responses in a Bloomberg News survey.

Gasoline stockpiles probably dropped 750,000 barrels from 217.4 million the prior week, according to the survey. Distillate fuels, a category that includes heating oil and diesel, probably fell 1 million barrels from 140.8 million.

Gasoline futures for May delivery dropped 1.78 cents, or 1.2 percent, to settle at $1.4632 a gallon in New York. Heating oil for May delivery fell 3.08 cents, or 2.2 percent, to end the session at $1.398 a gallon.

“The market is caught between economic hope and high inventories,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “There’s still a debate over how low demand will drop this year.”

Brent crude oil for May settlement fell $1.92, or 3.6 percent, to end yesterday’s session at $52.14 a barrel on London’s ICE Futures Europe exchange. Brent is trading at a $2.09-a-barrel premium to the West Texas Intermediate contract in New York, swinging from a discount of 43 cents on March 31.