By Barani Krishnan
Investing.com - The International Energy Agency has poured a bucket of cold water on the sizzling oil rally by asking the pertinent question: Would consumers buy if you only pump at these prices?
U.S. West Texas Intermediate crude and U.K. Brent oil were down more than 1% each in Thursday's afternoon trade after the Paris-based IEA, which looks over the interests of Western energy consumers, suggested this year's price run-up was getting ahead of demand.
New York-traded WTI settled down $1.03, or 1.6%, at $63.58 per barrel. It hit a five-month high of $64.79 earlier this week.
London-traded Brent crude, the global benchmark for oil, was off by 91 cents, or 1.3%, to $70.82 by 2:48 PM ET (18:48 GMT). It hit a November high of $71.72 on Wednesday.
Notwithstanding the slide, WTI was still about 40% higher on the year while Brent showed a gain of 33% after aggressive production cuts by OPEC since December that came on top of U.S. sanctions on Venezuelan and Iranian oil and Libyan strife-related outages that have further squeezed supply.
The IEA, in its monthly report for April, pointed out that demand was a “very important” piece of the equation for oil market rebalancing and that faced a wall of uncertainty given the less-than-stellar outlook for the global economy.
“As far as 2019 is concerned, amongst the analyst community there is an extraordinarily wide divergence of view as to how strong growth will be,” the IEA said in its report. “We maintain our forecast of 1.4 million barrels per day, but accept that there are mixed signals about the health of the global economy, and differing views about the likely level of oil prices.”
Also taking the wind out of bulls’ sails this week, weekly data from the Energy Information Administration on Wednesday showed U.S. crude stockpiles up by a total of 17 million barrels over the past three weeks although demand for fuel products such as gasoline and diesel has been robust too.
U.S. crude production, meanwhile, has held at a record of 12.2 million bpd, cementing America’s position as the world’s largest oil producer.
The IEA report comes a day after OPEC's own April report on Wednesday that said key member Venezuela pumped 960,000 bpd in March, a drop of almost 500,000 bpd from February.
The figures could add to a debate within the so-called OPEC+ group of producers on whether to maintain oil supply cuts beyond June.
OPEC, Russia and other non-member producers are reducing output by 1.2 million bpd from Jan. 1 for six months. The producers are due to meet on June 25-26 to decide whether to extend the pact.
Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C., said the oil rally could see some serious headwinds at this point.
"I see a market that isn’t short any more with CTA longs, and Index length now nearly 100% in the front end of WTI," Shelton said. "There are a lot of signals here to me that the market may be ready to retrace here not only on WTI spreads but also on flat price."
He added: "I don’t want to discount that as it can take the market 'out of value' as it did late last year when prices went under $50 and ended up at $42. The only exception is that the fall at the end of the year was during the holidays, which means risk taking was at a minimum."
WTI hit an intraday low of $42.36 on Dec. 24 and rebounded to finish 2018 at $45.10.
Despite the IEA's less-than-optimistic demand outlook, RBC Capital predicted $80 Brent by summer, warning that "many wounded bulls remain following the Q4′18 washout”.