The price of oil fell back to below $105 a barrel Thursday, ending a surge that had pushed the price to a 16-month high, after a report from the International Energy Agency said oil supplies would exceed the expected rise in demand next year.
U.S. benchmark crude fell $1.85 to $104.67 in midday trading in New York. Brent crude, which is used to price imported crude used by many U.S. refineries, fell 92 cents to $106.75.
Oil has shot higher in recent days on a dramatic drop in supplies of oil and gasoline in the U.S., suggesting demand for the world’s biggest consumer of oil may be rising. Crude rose as high as $107.45 early Thursday — the highest since March of last year — before falling back in later trading.
But analysts noted even as prices were rising that global supplies remain ample and world demand, while growing, was moderate.
“The (U.S. crude) market has become overcooked,” wrote energy analyst Jim Ritterbusch of Ritterbusch & Associates in a report Thursday.
Oil extended its recent rise Wednesday after the Energy Department said U.S. crude supplies fell by 9.9 million barrels in the week ended July 5. Gasoline supplies fell by 2.6 million barrels. In the past two weeks, oil supplies have dropped 20.2 million barrels, which is slightly more than one day’s consumption for the U.S., while gasoline supplies have fallen 4.3 million barrels.
The supply drop, along with continued concerns that political upheaval in the Middle East could disrupt oil deliveries, had sent the price of oil up by $11 per barrel in two weeks.
The supply drop is also pushing U.S. retail gasoline prices higher, ending what had been a long, gradual slide in pump prices. The national average price of a gallon of gasoline rose 2 cents Thursday to $3.52 per gallon. It marked the third straight day of increases, though the average is 11 cents lower than it was a month ago.
More increases are expected in the coming days as higher crude prices and wholesale gasoline prices translate to higher retail prices. But it may eventually reverse because despite the recent supply drop in the U.S., oil and gasoline inventories remain above their five year averages.
“There is little evidence that the stronger U.S. economy is leading to a recovery in U.S. oil demand,” said commodities analyst Caroline Bain of the Economist Intelligence Unit. “While geopolitical risk, related to the unrest in Egypt and the Middle East more generally, is currently buoying oil prices, if this risk were to fade, there will be few pillars of support for the oil market in the second half of this year.”
On a similar note, the Paris-based International Energy Agency said expectations that forecasts for 2014 should give those betting on rising oil prices “some cause for alarm.”
The IEA expects supply growth to result in an additional 1.3 million barrels of oil a day in 2014, while global demand is seen growing by just 1.2 million barrels a day next year.
“Non-OPEC supply growth looks on track to hit a 20-year record next year,” the IEA said Thursday in its latest monthly oil market report. “While demand growth is also forecast to pick up momentum … this will still fall short of forecast non-OPEC supply growth.”
The IEA pointed to growing oil production in the United States and Canada as the key source of the extra supplies.
“North American supplies are set to grow strongly, outpacing declines elsewhere,” the IEA said.
In other energy futures trading on Nymex:
— Wholesale gasoline fell 2 cents to $2.99 a gallon.
— Natural gas fell 8 cents to $3.60 per 1,000 cubic feet.
— Heating oil fell 1 cent to $2.99 a gallon.
Associated Press writer Pablo Gorondi contributed to this report from Budapest.