Oil declined as investors assessed the International Energy Agency’s reduced forecasts for global oil demand in part due to a slowdown in air travel.
After closing at a five-month high on Wednesday, U.S. crude futures lost steam with the agency reducing its estimates for almost every quarter through to the end of next year. Air travel remained two-thirds lower than last year in July, normally a peak month because of holiday flying, it said in a monthly report.
Still, the IEA said world markets should tighten during the rest of the year with OPEC nations keeping production limited.
The IEA report followed a report from OPEC, which warned that its rivals in the U.S. shale-oil industry are being hit less hard by the market downturn than it previously expected. As the oil market struggles to work down a persistent inventory overhang, the pace of drawdowns in global crude supplies will slow in August, September and more dramatically in October, according to Energy Aspects Ltd.
In a sign of continued weak demand, a company majority-owned by Royal Dutch Shell Plc said it will shut a 110,000 barrel-a-day refinery in the Philippines.
Still, physical markets are showing some strength. Mars Blend, a high-sulfur crude, traded at $1.40 a barrel above Nymex oil futures this week, the largest premium in over a month. Light Louisiana Sweet crude is trading at $1.80 a barrel over Nymex WTI futures this week, its highest premium in nearly three weeks.