Oil price drops more than US$1on IEA warning of shrinking demand

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Echoing the forecast by IEA, the Organisation of the Petroleum Exporting Countries said after long years of punishingly low oil prices, there is "increasing evidence" that the oil market is moving closer to reaching a healthy balance between supply and demand.

The Paris-based IEA argued that with consumption in petrochemicals and other transportation still growing, the drop in oil demand would be at a modest pace.

The IEA also released the 2017 edition of its World Energy Outlook Tuesday morning.

"Using a scenario whereby current levels of Opec [Organisation of the Petroleum Exporting Countries] production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 0.6m bpd followed by another, smaller, surplus of 0.2m bpd in 2Q18".

"The US will become the undisputed global oil and gas leader for decades to come", said Fatih Birol, IEA executive director. "This is why, absent any geopolitical premium, we may not have seen a "new normal" for oil prices".

The benchmark report notes that with renewable energy technologies nipping at the heels of oil, natural gas and coal and a global push by policymakers to cut carbon emissions, juxtaposed with near-insatiable demand from a global population that will hit 9 billion within a few decades and the rise of the US as the world's largest oil and gas producer, the energy sector is experiencing disruptive times.

"While other major companies continue to maintain a presence in oil sands operations, it remains an open question whether the exit of these companies will impact prospects for oil sands development over the longer term", the IEA said.

Crude has climbed lately to a two-year high around $57 USA a barrel in trading in NY, although it is not seen making much larger gains due to rising U.S. output.

Growth in energy demand is half what it would have been without improvements to efficiency.

After hitting a 10-year low of less than $30 in January, down from a peak of more than $100 in mid-2014, oil prices have recently been hovering around the $55 mark.

Some analysts even predict that with oil demand declining as EVs set to replace conventional fuel vehicles, oil price could plunge to as low as $10 a barrel over the next six to eight years.

The forecasts are also underpinned by some major assumptions: The report assumes that governments stick to promises they've made on energy, including pledges by India and China to move away from fossil fuels.

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