Oil falls to below $50 on demand forecast
SIOUX FALLS, South Dakota -- Oil prices fell below $50 a barrel Monday as investors reacted to slipping stock markets and an International Energy Agency report forecasting a drop in global crude demand.
Benchmark crude for May delivery dropped $2.92 to $49.32 a barrel on the New York Mercantile Exchange, taking its downturn shortly after U.S. stock markets kicked off the week lower.
Traders were able to ignore weak demand last week, "but that was only when the stock market was doing as well as it did," said Phil Flynn, an analyst at Alaron Trading Corp.
Oil had last settled at $52.24 on Thursday, finishing the week early because of the Good Friday holiday.
The Paris-based IEA, an energy policy adviser comprised of 28 countries, said Friday that demand this year will likely fall by 2.4 million barrels a day to 83.4 million barrels, or 2.8 percent lower than last year.
"In other words, the IEA lowered its estimate the equivalent of the daily output of Iraq," analyst and trader Stephen Schork said in his daily Schork Report.
Flynn said the IEA report put a damper on the mood because the agency usually underestimates demand. The report hails from a consuming nation, so the agency tends to err to the slower-demand side to pressure producing countries and keep prices in check.
"So when they come out with such a bearish number, it really puts pressure on the market," he said.
Oil prices have rallied from below $35 a barrel in February, mirroring a jump in stock markets, as investors anticipate massive global stimulus packages may spark a recovery in the second half.
Traders will be watching a slew of quarterly corporate earnings reports this week for signs the worst of the economic downturn is over. Banks such as Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. will report this week along with Intel Corp., Johnson & Johnson, Mattel Inc.
On Sunday, Iran's oil minister Gholam Hossein Nozari told state television that a price of between $75 and $80 dollars a barrel is desirable for both Tehran and oil consumers.
Iran is a member of the Organization of Petroleum Exporting Countries, which as announced production cuts of 4.2 million barrels a day since September.
In other Nymex trading, gasoline for May delivery fell 6.96 cents to $1.4114 a gallon and heating oil dropped 7.39 cents to $1.3549 a gallon. Natural gas for May delivery sank 9.5 cents to $3.515 per 1,000 cubic feet.
In London, Brent prices fell $2.63 to $51.43 a barrel on the ICE Futures exchange.