Crude Oil Falls More Than $3 as the IEA Cuts Demand Forecast

By Mark Shenk


Nov. 13 (Bloomberg) -- Crude oil fell more than $3 a barrel, the biggest decline in three months, after the International Energy Agency cut its forecast for global demand through 2008 and record prices curb fuel use.

Consumption next year will average 87.69 million barrels a day, the IEA said today, 300,000 barrels a day fewer than a previous estimate. Fourth-quarter use will be 500,000 barrels a day less than expected, the adviser to 26 oil-consuming nations said in a monthly report.

``The IEA report today had a sizable decline in demand expectations for this year,'' said James Ritterbusch, president of Ritterbusch & Associates, in Galena, Illinois. ``It looks like they were too optimistic about demand and didn't figure on the impact of high prices.''

Crude oil for December delivery fell $3.45, or 3.7 percent, to settle at $91.17 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the lowest close since Oct. 30. It was the biggest drop since Aug. 6. Futures climbed to $98.62 on Nov. 7, the highest price since trading began in 1983. Oil is up 56 percent from a year ago.

Oil options contracts betting on $100 crude oil this year expired worthless today. The December options contract was last priced at 1 cent, or $10 per contract, unchanged from yesterday, after falling from a peak of $1.28, on Nov. 2, according to data compiled by Bloomberg. One options contract is for 1,000 barrels of oil.

At today's price, investors holding onto options bought at the peak will lose as much as $1,270 a contract, according to data compiled by Bloomberg.

``It looks like the market may have found a top,'' Ritterbusch said. ``It was widely anticipated that the crude- option expiration would facilitate a run on $100.''

Brent Prices

Brent crude oil for December settlement fell $3.15, or 3.4 percent, to close at $88.83 a barrel on the London-based ICE Futures Europe exchange. It was also the biggest single-day drop since Aug. 6. Futures reached $95.19 a barrel on Nov. 7, the highest since trading began in 1988.

The IEA has cut its fourth-quarter forecast three times since August on expectations higher gasoline prices and an economic slowdown in the U.S. will restrain demand in the world's largest energy consumer. The U.S. is responsible for about 25 percent of global oil demand.

Demand Growth

Half of the world's growth in oil demand will occur in China and the Middle East, where consumers benefit from government fuel subsidies, the IEA said.

Industry stockpiles in the world's most developed economies fell 29.5 million barrels in September to 2.6 billion barrels, according to the agency. Global inventories are 113.9 million barrels lower than a year ago and Japanese crude stock levels are at their lowest in at least 20 years, the report said.

``In all of the excitement of the bull market a number of economists forgot that the price mechanism works,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``The price mechanism works by discouraging demand and by encouraging exploration and development of new supplies.''

Petroleo Brasileiro SA, Brazil's state-controlled oil company, announced Nov. 8 that the Tupi field may hold 5 billion to 8 billion barrels.

``Last week's announcement from Brazil may be the vanguard of similar discoveries ahead,'' Beutel said. ``I think we will see supply grow in the next two years. High prices have led to increased supply in the past and I see no reason for that to change now.''

OPEC Summit

OPEC's summit in Riyadh, Saudi Arabia, on Nov. 17 and 18 will focus on the security of oil supply, Saudi Oil Minister Ali al-Naimi said in the country's capital today. He said OPEC has the ``least influence'' on prices and recent increases can be attributed to ``pessimism'' over supply.

The U.S. has asked OPEC to consider raising crude oil production when leaders of the group's member states to lower prices from near records, Energy Secretary Samuel Bodman said. Bodman met representatives of the Qatari and Algerian governments on the sidelines of the World Energy Congress in Rome today and said output should increase, he told reporters today.

The Organization of Petroleum Exporting Countries, which produces more than 40 percent of the world's oil, will discuss output at a Dec. 5 ministerial-level meeting in Abu Dhabi, OPEC officials have said.

$100 Oil

``We seek stabilization at $100 a barrel for several years,'' Venezuelan President Hugo Chavez said in a press conference today in Caracas. He said prices over the past 30 years were ``very low'' and that $100 oil today was, after inflation, similar to the $30 oil experienced in 1973 and 1974.

Venezuela was the fourth-biggest source of U.S. crude-oil imports during the first eight months of this year, according to the Energy Department.

Prices over the past month have been higher than the previous all-time inflation-adjusted high reached in 1981 when they jumped because Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.