Oil prices slip as IEA highlights ‘supply shock’

IEA outlook, U.S. supply data on tap

By Carla Mozee and Sara Sjolin, MarketWatch

LONDON (MarketWatch) — Benchmark U.S. crude-oil futures reversed and slipped below $95 a barrel on Tuesday, after the International Energy Agency said strong oil production in the U.S. is expected to outpace the demand in high-growth emerging markets.

Crude oil for June delivery CLM3 -0.45%  dropped 31 cents, or 0.3%, to $94.86 a barrel.

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Oil tankers off the coast of Singapore.

The move added to Monday’s loss of 87 cents, or 0.9%, on the New York Mercantile Exchange, where the contract settled at $95.17 a barrel, the lowest since May 2.

The contract started to move lower during early European trading hours, after the International Energy Agency said the oil market is undergoing a positive 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 agency maintained its supply forecast that non-OPEC production will rise by 1.1 million barrels a day, which has led to lower demand estimates for crude oil from the Organization of the Petroleum Exporting Countries in the second quarter.

“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 annual Medium-Term Oil Market Report.

In the same vein, a report showed Monday that oil production from OPEC rose by 250,000 barrels a day in April from a month earlier to 30.5 million barrels per day, according to a Platts survey of OPEC and other oil-industry officials and analysts.

The survey showed production is running about 500,000 barrels a day above the cartel’s 30 million barrel-per-day output ceiling.

The IEA report came ahead of the American Petroleum Institute’s publication of its weekly report on U.S. crude-oil supply. The API’s report will be followed by supply data from the U.S. Energy Information Administration on Wednesday.

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Falling gasoline prices allow U.S. consumers to spend more at other retail locations in April, a sign shoppers may be gaining confidence about the economic recovery. Photo: AP.

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 395.514 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.

Elsewhere in the energy complex on Tuesday, London-traded benchmark Brent crude oil for June UK:LCOM3 -0.50%  was down 1 cent at $102.68 a barrel.

Meanwhile, natural gas for June delivery NGM13 +1.20%  edged up 2 cents, or 0.4%, to $3.94 per million British thermal units.

June heating oil HOM3 -0.67% was slightly lower at $2.88 a gallon, and June gasoline RBM3 +0.14%  added less than 1 cent, or 0.1%, to $2.82 a gallon.

Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee. Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.