Oil ends below $95 as IEA details ‘supply shock’

May 14, 2013, 3:28 p.m. EDT

Prices down four sessions; market awaits U.S. supply updates

By Myra P. Saefong and Sara Sjolin, MarketWatch

SAN FRANCISCO (MarketWatch) — Oil futures settled below $95 a barrel on Tuesday after the International Energy Agency referred to the surge in North American production as a “supply shock” that’s sending “ripples throughout the world.”

The continued record pace of growth in North American oil production is expected to outpace demand in high-growth emerging markets.

“With the abundance of supply, coupled with a stronger dollar, we could see oil fall to our key level of $92, and then possibly more,” said Jason Rotman, president of Lido Isle Advisors in Newport Beach, Calif.

On the New York Mercantile Exchange, crude oil for June delivery /quotes/zigman/2237076 CLM3 -0.94%  fell 96 cents, or 1%, to settle at $94.21 a barrel — its fourth straight session loss and lowest close since May 2.

The International Energy Agency on Tuesday said the oil market is undergoing a supply shock, as production in North America continues to grow at a record pace, with non-OPEC supply alone expected to meet most of the world’s rising energy demand.

The Paris-based agency forecasts North American supply to grow by 3.9 million barrels per day from 2012 to 2018 — nearly two-thirds of total forecast non-OPEC supply growth of 6 million barrels per day.

“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the IEA said in its Medium-Term Oil Market Report.

“The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined,” the IEA said. Read about Saudi Arabia’s take on the U.S. oil boom in the Energy Ticker blog.



‘North America has set off a supply shock that is sending ripples throughout the world.’



Maria van der Hoeven, IEA

In a press release following the launch of the report at the Platts Crude Oil Summit in London, the agency’s Executive Director Maria van der Hoeven said “North America has set off a supply shock that is sending ripples throughout the world.”

Rising supplies from OPEC members have also been a concern for the oil market.

According to the results of a Platts survey of OPEC and other oil-industry officials and analysts released Monday, oil production from OPEC rose by 250,000 barrels a day in April from a month earlier to 30.5 million barrels per day. The survey showed production is running about 500,000 barrels a day above the cartel’s 30 million barrel-per-day output ceiling.

Dulled impacts

“The improving economy and soaring stock market should be lending more support to oil prices, but we are just not seeing it,” said analysts for the Kilduff Report.

“The rising dollar is having a limiting effect on the ability of commodity prices to rise,” they said. “There is more dollar strength, as the U.S. budget-deficit plunge gets more attention, among other factors.”

The dollar index /quotes/zigman/1652083 DXY +0.44%  traded at 83.569, up from 83.276 late Monday. A stronger dollar tends to put pressure on dollar-denominated commodity prices. U.S. equities also climbed.

With an oil glut coming to the U.S. Gulf Coast and a lot a refined product heading to the U.S. from Europe, “it looks like a good spot to get short lies before us,” the Kilduff Report analysts said.

The market now awaits separate weekly reports on U.S. petroleum supplies — due late Tuesday from the American Petroleum Institute and Wednesday from the U.S. Energy Information Administration.

Analysts polled by Platts expect crude stockpiles to continue to push to record levels, with an expected build of 300,000 barrels in the week ended May 10. U.S. commercial crude stocks were at 395.5 million barrels for the week ended May 3, more than 9% higher than the EIA’s five-year average, Platts said in a statement.

Also, gasoline stocks are expected to have declined 800,000 barrels last week, while distillate stocks likely rose by 800,000 barrels, the Platts survey showed.

Elsewhere in the energy complex on Tuesday, London-traded benchmark Brent crude oil for June delivery /quotes/zigman/2666545 UK:LCOM3 -0.14%  fell 22 cents, or 0.2%, to finish at $102.60 a barrel.

Meanwhile, on Nymex, natural gas for June delivery /quotes/zigman/2294278 NGM13 +2.34%  climbed 10 cents, or 2.6%, to close at $4.025 per million British thermal units — ending above the $4 level for the first time in over a week. June heating oil /quotes/zigman/9821411 HOM3 -0.60% settled down 2 cents, or 0.6%, at $2.87 a gallon, and June gasoline /quotes/zigman/2107770 RBM3 +0.67%  added 2 cents, or 0.6%, to $2.84 a gallon.

Myra Saefong is a MarketWatch reporter based in San Francisco.

Sara Sjolin is a MarketWatch reporter based in London.

Carla Mozee in Los Angeles contributed to this report.




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