Oil prices dive on IEA, Goldman demand warnings

NEW YORK: World oil prices slumped for a second straight day Tuesday after the International Energy Agency warned that recent high prices have hurt global demand for energy.

Selling pressure also got a boost after Goldman Sachs recommended investors cash in their bets on the overinflated commodities markets, arguing that oil prices have less upside potential at this point and could be forcing retail buyers to cut consumption.

New York's main contract, light sweet crude for delivery in May, closed a steep $3.67 lower at $106.25.

The benchmark West Texas Intermediate futures contract has lost almost 6.0 percent of its value in the past two trading sessions.

In London, Brent North Sea crude for delivery in May slumped $3.06 to settle at $120.92 a barrel.

"Focus has really shifted away from the unrest in the Middle East" which had helped to push crude prices up to their highest levels since September 2008, said Matt Smith, a Summit Energy analyst.

The market is now concerned that "elevated prices are going to act as a crimp on global demand," he said.

"We"re seeing initial signs of this, especially in the US in terms of data coming through for gasoline demand."

The International Monetary Fund warned Monday that high oil prices were a key risk to global economic recovery.

The warning flag was hoisted again Tuesday, by the Paris-based International Energy Agency.

The IEA warned that "there are real risks that a sustained $100-dollars-a- barrel-plus price environment will prove incompatible with the currently expected pace of economic recovery."

The agency said in its monthly report that "global oil demand growth has shown signs of slowing in recent months in the face of sharply higher prices."

Even so, the IEA kept its oil demand prediction for the rest of the year unchanged, saying it should reach 89.4 million barrels per day (bpd), 1.6 percent up on 2010.

World oil production dropped by 70,000 bpd to 88.3 million bpd in March, due to a 70 percent drop in production in Libya, where rebels in the east of the country are fighting Moamer Kadhafi's regime, backed by NATO air strikes.

That pushed up oil prices, as producers did little to make up the difference.

"The loss of Libyan production and the 25-30 percent jump in oil prices since the crisis began in mid-February has so far drawn a limited response from fellow OPEC members," the IEA noted.

Traders are particularly concerned that rocketing prices could undermine the delicate recovery in the United States, the world's biggest economy and the largest oil-consuming nation.

The US government on Tuesday meanwhile sharply hiked its estimates for crude oil prices in 2011 and 2012, citing in particular supply risks in the Arab world.

In its monthly report, the US Energy Information Administration said it now expects crude oil will average $106 a barrel this year on the New York market, up from a prior forecast of $102. The US agency predicted a barrel price of $114 in 2012.

Surging oil prices have sparked fears of a return to the record levels above $147 a barrel seen in 2008.

In a separate report on Tuesday, the Organization of the Petroleum Exporting Countries raised its world oil demand growth forecast for 2011 by 1.6 percent, to 87.94 million bpd.