OPEC kept estimates for world supply and demand in 2016 unchanged in its monthly market report. Photo: Bloomberg
Oil dropped to a three-week low in New York as risk aversion among investors sent equities lower and bolstered the US dollar, reducing the appetite for commodities.
Futures fell 0.8 per cent, capping a four-day decline of 5.3 per cent. Increasing odds of a UK exit from the European Union boosted demand for havens, sending Germany's 10-year bond yields below zero for the first time. Still, global oil markets will be almost balanced next year as demand continues to rise faster than output, while the current oversupply is much smaller than previously thought, the International Energy Agency said.
"Brexit is becoming a major concern to a lot of people," said Scott Roberts, co-head of high yield investments and manager of $US2.7 billion at Invesco Advisers in Atlanta. "The recent polls show that it might become a reality, and if it does you're likely to see the dollar strengthen and oil will go lower."
Oil has surged more than 80 per cent from a 12-year low in February as the global glut is trimmed by disruptions and a slide in US output, which is under pressure from the Organisation of Petroleum Exporting Countries' policy of pumping without limits. OPEC predicted the market will be more balanced the second half of this year as demand rises and rival supplies falter, according to a monthly report released Monday.
West Texas Intermediate for July delivery fell 39 cents to settle at $US48.49 a barrel on the New York Mercantile Exchange. It's the lowest close since May 23. Total volume traded was 17 per cent below the 100-day average at 2.49pm.
Brent for August settlement declined 52 cents, or 1 per cent, to $US49.83 a barrel on the London-based ICE Futures Europe exchange. It's the lowest close since June 3. The global benchmark ended the session at a 77-cent premium to WTI for August delivery.
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The S&P 500 Index and MSCI All-Country World Index fell a fourth day as five polls showed more UK voters were in favour of leaving the EU in the June 23 referendum. The Bloomberg Dollar Index, which tracks the currency against major peers, was up 0.4 per cent. The Bloomberg Commodity Index, a gauge of 22 raw materials, dropped as much as 1.1 per cent.
The oil surplus in the first half of this year is about 40 per cent smaller than estimated a month ago, as consumption proves stronger than expected while disruptions reduce supply, the IEA said Tuesday. Still, the "enormous inventory overhang" that accumulated during years of oversupply will limit any significant increase in prices, it said.
"The fact that the market was able to fall after the bullish IEA report shows just how strong the risk-off trade is," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "The dollar is very strong as investors look for safe havens. You have to wonder how much lower we would be if not for the IEA."
Oil-market news:
- Nigerian militants whose attacks on oil infrastructure have sent output plunging said for the first time that they are considering peace talks.
- OPEC kept estimates for world supply and demand in 2016 unchanged in its monthly market report. Disruptions in Nigeria reduced the group's output to 32.36 million barrels a day in May.
- US crude inventories probably dropped by 2.33 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.
