Investing.com -- Crude futures fell sharply on Tuesday retreating back near 12-year lows, as a bearish report from the International Energy Agency forecasted a further widening of the supply-demand imbalance on global markets, placing added downside pressure on dwindling energy prices.
On the New York Mercantile Exchange, WTI crude for March delivery traded between $27.75 and $30.61 a barrel, before settling at $27.98, down 1.71 or 5.74% on the day. Since spiking more than 8% last Wednesday, U.S. crude futures have closed lower in four straight sessions and six of the last seven. More broadly, Texas light, sweet futures have crashed approximately 25% since the start of the new year. At session lows, WTI crude fell to its lowest level on Tuesday since late-January.
On the Intercontinental Exchange (ICE), brent crude for April delivery wavered between $30.28 and $33.55 a barrel, before closing at $30.36, down 2.49 or 7.60% on the session. North Sea brent futures all fell for the fifth consecutive trading day and the seventh time in the last eight sessions.
Crude prices on Tuesday quickly erased overnight gains after a report from the Paris-based IEA sent warnings that the current surplus on global energy markets could be even worse than previously anticipated. In its February Oil Market Report, the IEA said that oil stocks will likely rise by 2 million barrels per day in the first quarter, in spite of a recent rally that lifted prices above their lowest levels since 2003. The IEA also expects supply will remain relatively high in the second quarter, when production could increase by another 1.5 million bpd.
In January, the IEA sent shockwaves through the industry when it predicted that the world will "drown in excessive supply," as Iran ramps up exports by as much as 1 million bpd over the next several months. Over the weekend, Iran oil minister Bijan Zangeneh said the National Iranian Oil Company (NIOC) is close to finalizing a deal with France's Total to sell 160,000 barrels per day, according to Iran news agency Shana.
At the same time, the IEA estimates that supply will outpace demand by an average of 1.75 million bpd in 2016, slightly above forecasts of 1.5 million bpd last month. The agency expects demand growth to decelerate to 1.2 million bpd this year, amid notable slowdowns in the U.S., China and the euro zone. Currently, annual demand growth is projected to increase by 1.17 million bpd, below a five-year high of 1.6 million in 2015.
“If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term," the IEA said in the report. "In these conditions the short-term risk to the downside has increased."
Investors also await the release of the American Petroleum Institute's weekly inventory report after the bell, for further indications of demand strength in the U.S., the world's largest consumer of oil. Separately, Wednesday's government report could show that crude stockpiles rose by 4.0 million barrels for the week ending on January 5. Crude inventories nationwide are perilously close to reaching full capacity. At the Cushing Oil Hub, the nation's largest storage facility, there was approximately 65 million barrels in storage as of Jan. 29, representing 88% of total capacity, according to the Energy Information Agency.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 1% on Tuesday to an intraday low of 95.68, its lowest level since late-October. The dollar has tumbled nearly 3.5% since the Federal Reserve held short-term interest rates at its current level between 0.25 and 0.50% at a Federal Open Market Committee meeting last month.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.