Oil drops on IEA glut warning, rise in U.S. stocks

[July 13, 2016]  By Karolin Schaps

LONDON (Reuters) - Oil fell on Wednesday after the International Energy Agency (IEA) warned that a global supply glut threatened a price recovery and data showed an unexpected weekly gain in U.S. crude stocks.

The IEA, which advises industrialized nations on energy policies, said crude inventories kept rising last month and pushed floating storage to the highest level in seven years.

"(Stocks) are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices," the Paris-based IEA said in its latest report.

Stocks of U.S. crude and refined products rose unexpectedly last week by 2.2 million barrels, data from the American Petroleum Institute, an industry group, showed late on Tuesday.

This provided further bearish impetus to the market a day after prices had risen 5 percent, giving investors a chance to lock in gains.

The U.S. government's Energy Information Administration (EIA) releases official weekly inventory data at 1430 GMT on Wednesday.

Global benchmark Brent oil <LCOc1> was down 74 cents at $47.73 a barrel at 1139 GMT after settling up $2.22, or 4.8 percent, in the previous session.

U.S. crude traded at $46.25 a barrel, down 55 cents on Tuesday's close.

A further potentially bullish factor was removed when Nigerian oil workers agreed to suspend strike action that could have disrupted crude oil production.

Despite its bearish oil price outlook, the IEA also raised its forecasts for 2016 and 2017 oil demand growth by 0.1 million barrels per day to 1.4 million bpd and 1.3 million bpd, respectively.

"Therefore any weakness based on the IEA report should be short-lived," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

Credit Suisse raised its 2016 oil price forecasts on Wednesday. The bank forecast U.S. crude would average $43.59 per barrel this year versus $36.91 in its earlier forecast, and $55.00 for 2017, versus $52.88 earlier.

Brent will average $44.53 a barrel this year, up from $37.77, and average $56.25 in 2017, up from $54.25 earlier.

(Additional reporting by Keith Wallis in Singapore; Editing by Dale Hudson and William Hardy)

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