Oil Extends Drop to Near $55 on Signs US Crude Stockpiles Rose

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Oil prices fell by 1% on Wednesday, continuing Tuesday's slide after the International Energy Agency cast doubts over the past few months' narrative of tightening fuel markets.

West Texas Intermediate for December delivery fell 37 cents to settle at US$55.33 a barrel on the New York Mercantile Exchange, the lowest close since Nov 2.

The IEA's outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue.

The benchmarks have dipped from earlier in the month, when a surfeit of buying from funds, bolstered by expected strength in demand and momentum from the ongoing rally, boosted prices to two-year highs.

Oil inventories in the world's richest nations fell by 40 million barrels in September, breaking below 3.0 billion barrels for the first time in two years, driven in part by Hurricane Harvey, which shuttered much US refining capacity in August.

On Tuesday, the IEA cut its oil demand growth forecast by 100,000 barrels per day (bpd) for both 2017 and 2018.

The IEA report countered the Organisation of the Petroleum Exporting Countries (Opec), which just a day earlier said 2018 would see a strong rise in oil demand.

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"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".

"We expect prices to remain soft and move related to any rhetoric that comes out prior to those meetings from all of the involved parties", Adam Wise, who oversees an $8 billion energy portfolio at John Hancock Financial Services Inc in Boston, said by telephone.

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

OPEC and some non-OPEC producers including Russian Federation have been withholding production this year to end years of oversupply.

The report projects that by 2025, oil production in America will match that of Saudi Arabia, and by 2030, it will be exporting 30m barrels of oil and daily - 50% more than the single year yield of any other country in history. But analysts expect the price to not rise much further in coming months as the USA ramps up production. The largest contribution to demand growth - nearly 30 per cent - would come from India, whose share of global energy would rise to 11 per cent by 2040, it said.

OPEC meets on November 30 and is expected to agree an extension to its output cuts.