Oil prices tumbled on Friday to their lowest level since the outbreak of fighting in Libya after western governments agreed to release strategic stocks of crude for only the third time since 1974.
The price of Brent crude futures, the global benchmark, tumbled 8.5 per cent over the week to touch a low of $103.62 a barrel on Friday – the lowest since February 21, when an escalation of violence in Libya first threatened oil supplies.
Prices fell as much as $8 a barrel in the wake of Thursday’s announcement that the members of the International Energy Agency, a group of rich oil consuming countries, would release as much as 2m barrels a day from their strategic reserves over a 30-day period.
Traders, who had been expecting global oil markets to tighten in the coming months, were caught wrong-footed. More than 1.2bn barrels of Brent crude futures changed hands on Thursday – 35 per cent higher than the previous record volume.
The news of higher supply compounded some investors’ concerns about weakening economic growth, especially in the US and eurozone. Oil prices have now fallen 18 per cent from a peak in April, while commodities as a group have slumped 11 per cent.
Analysts and traders had expected global oil demand to outpace supply by 1m-2m b/d in the third quarter, as refiners ramped up output after their traditional maintenance season and summer power shortages in Japan and China boosted demand for diesel for electricity generation.
Thus, in the short term, the move could alleviate some of the expected shortage, analysts said, slashing their oil price forecasts.
Goldman Sachs said prices would be $10-$12 lower than expected over the next three months, predicting a Brent price of $105-$107 a barrel. JPMorgan cut its projection for third quarter prices to $100 on average from $130. And Morgan Stanley said the IEA’s move could push prices $10 lower than the $120 it had previously forecast for the whole of 2011.
Paul Horsnell, head of commodities research at Barclays Capital, said: “If the third quarter was set to be the strongest quarter with the largest quarter on quarter increase in demand, resulting in a sharp stock draw to balance the market, the IEA’s actions may alleviate a part of that tightness.”
The longer-term implications of the move were less straightforward, analysts said. The apparent willingness of the IEA to intervene more actively in the oil market than it has done is likely to make traders wary of betting on oil price spikes in the future.
On the other hand, analysts noted that the IEA would most likely have to return to the market at some point and replenish any stocks they sell.-FT
The price of Brent crude futures, the global benchmark, tumbled 8.5 per cent over the week to touch a low of $103.62 a barrel on Friday – the lowest since February 21, when an escalation of violence in Libya first threatened oil supplies.
Prices fell as much as $8 a barrel in the wake of Thursday’s announcement that the members of the International Energy Agency, a group of rich oil consuming countries, would release as much as 2m barrels a day from their strategic reserves over a 30-day period.
Traders, who had been expecting global oil markets to tighten in the coming months, were caught wrong-footed. More than 1.2bn barrels of Brent crude futures changed hands on Thursday – 35 per cent higher than the previous record volume.
The news of higher supply compounded some investors’ concerns about weakening economic growth, especially in the US and eurozone. Oil prices have now fallen 18 per cent from a peak in April, while commodities as a group have slumped 11 per cent.
Analysts and traders had expected global oil demand to outpace supply by 1m-2m b/d in the third quarter, as refiners ramped up output after their traditional maintenance season and summer power shortages in Japan and China boosted demand for diesel for electricity generation.
Thus, in the short term, the move could alleviate some of the expected shortage, analysts said, slashing their oil price forecasts.
Goldman Sachs said prices would be $10-$12 lower than expected over the next three months, predicting a Brent price of $105-$107 a barrel. JPMorgan cut its projection for third quarter prices to $100 on average from $130. And Morgan Stanley said the IEA’s move could push prices $10 lower than the $120 it had previously forecast for the whole of 2011.
Paul Horsnell, head of commodities research at Barclays Capital, said: “If the third quarter was set to be the strongest quarter with the largest quarter on quarter increase in demand, resulting in a sharp stock draw to balance the market, the IEA’s actions may alleviate a part of that tightness.”
The longer-term implications of the move were less straightforward, analysts said. The apparent willingness of the IEA to intervene more actively in the oil market than it has done is likely to make traders wary of betting on oil price spikes in the future.
On the other hand, analysts noted that the IEA would most likely have to return to the market at some point and replenish any stocks they sell.-FT
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