Oil prices drop despite IEA demand forecast upgrade

Crude prices fell on Tuesday, despite news that International Energy Agency has upgraded its forecast for oil demand growth for this year.

In London late afternoon deals, Brent North Sea crude for delivery in June shed 13 cents to $102.69 a barrel.

New York's main contract, West Texas Intermediate (WTI) or light sweet crude for June, lost 18 cents to $94.99 per barrel.

"Crude oil prices have continued their recent declines, despite the IEA increasing its forecast for oil demand for 2013," said CMC Markets analyst Michael Hewson.

"Instead of supporting prices we've seen declines continue as rising inventories in the United States mean that supply will likely outweigh demand for quite some time to come."

The IEA, which tracks the energy market for the world's industrialised nations, raised marginally its outlook for global oil demand growth in 2013 to 90.6 million barrels a day (mbd).

The forecast for non-OPEC supply in 2013 was hiked 50,000 to 54.5 mbd owing to strong output in North America.

In addition, the IEA declared that booming oil output in North America, driven by the shale energy revolution, has created a global "supply shock" that is reshaping the industry.

"North America has set off a supply shock that is sending ripples throughout the world," said IEA Executive Director Maria van der Hoeven while presenting the agency's five-year outlook for the oil market.

The IEA added: "A mature economy which some 150 years ago had been the cradle of the oil industry, but had since faced what seemed like an irreversible production decline, (has) all of a sudden found itself at the centre of a new oil boom" -- putting pressure on crude prices.

That boom has created a brand new energy supply in a development that "will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15" years, it said.

Andrey Kryuchenkov, an analyst at Russian financial group VTB Capital, said that booming US production represented an "energy revolution" for the sector.

"Whichever way you look at it -- it is an energy revolution and even though many will doubt it can be replicated outside the North America, it proves that higher prices triggered a boost to capacity that will continue to outpace slack post-crisis demand growth," he told AFP.

"The world will remain well supplied ... and price volatility will come from macro events or geopolitical concerns where any price spike will be temporary given the supply cushion."

Crude futures had fallen Monday on fresh signs of economic weakness in China -- the world's largest energy consumer.

A trio of Chinese economic data -- on industrial production, retail sales and fixed-asset investment released Monday -- raised alarms about the pace of growth in the world's second-largest economy.

The oil market had also fallen last week after the US government's Energy Information Administration (EIA) revealed that American crude stocks rose to 395.5 million barrels in the week to May 3.

That was their highest level since 1982, when the weekly report began, indicating that production was outstripping demand.

On Wednesday, the EIA will publish data for the week to May 10.

The weekly report is eagerly anticipated by the market because the United States is the world's biggest consumer of crude oil.