NEW YORK (Reuters) – Oil prices fell 2 percent on Friday as the International Energy Agency's sharp reduction of its 2009 world oil demand forecast outweighed support from a continued cut in Russian gas supplies to Europe.
The IEA revised its estimate for 2009 demand downward by 940,000 barrels per day to 85.3 million bpd -- a fall of about 500,000 bpd year-on-year -- as the economic slowdown erodes consumption.
U.S. light crude for February delivery fell 73 cents to $34.67 a barrel by 11:50 a.m. EST, after hitting a high of $36.73. The contract, which expires on Tuesday, sank on Thursday to $33.20, the weakest price in nearly a month.
London Brent crude for March delivery fell 40 cents to $47.28 a barrel, maintaining an unusual premium to the U.S. benchmark due to growing U.S. stockpiles.
"Global oil demand is reducing at an alarming rate," said Rob Laughlin, senior oil analyst at MF Global in London.
"This latest report from the IEA is another warning shot across the bows to OPEC that supply is still outpacing demand and the situation is getting worse, seemingly day by day.
"Whilst OPEC is making an effort to adhere to quotas, the clear picture shows that another cut is required and soon."
In its report, the IEA said Chinese oil demand would grow at its slowest rate in eight years, rising by just 90,000 bpd in 2009 as its GDP growth slows to 6.5 percent.
The Organization of Petroleum Exporting Countries, which already has cut 4.2 million bpd in supply from the world market since September, could quickly deepen output cuts, if needed, OPEC President Botelho de Vasconcelos has said.
The global financial crisis has forced many economies into recession, reducing energy consumption and dragging down oil prices by more than $110 since a record peak in July.
Bank of America (BAC.N), which recently absorbed Merrill Lynch, and Citigroup (C.N) both reported huge losses for their fourth quarters on Friday, including billions of dollars of writedowns from exposure to debt and real estate markets.
The IEA report outweighed the effect of a contract dispute between Russia and Ukraine that led to a cut of gas supplies through Ukraine to Europe, affecting countries across the continent.
The European Commission said on Friday that Russia and Ukraine had a last chance this weekend to solve the dispute, or risk seeing their relations with the bloc suffer.
The European Union normally gets a fifth of all its gas from Russia via Ukraine. The loss of this supply has forced generators to switch to oil and coal at a time when Europe is experiencing bitter winter temperatures.
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Topic: Oil falls 2 percent on weak IEA demand forecast (Read 400 times)