Crude-Oil Futures Drop 2%, Settle At Four-Week Low On Demand Worries

Global economic forecasts anticipate shrinking crude demand with rising output, which has created a drop in futures. Understand the current market situation from the this article @ 4-traders.com or read below.

--U.S. data expected to slow slim drop in high inventories

--Saudi minister says current prices suit producers, consumers

--IMF lowers growth forecast for China, world's No. 2 oil user

By David Bird

NEW YORK--Crude-oil futures prices fell 2% to a four-week low near $93 a barrel Wednesday amid a slide in U.S. equities and concerns about slowing oil-demand growth.

Economic growth in China, the world's second-biggest oil consumer after the U.S., will be slower than expected this year, the International Monetary Fund warned. The IMF lowered its growth forecast for China to 7.75% from 8%. The potential slowdown sent ripples through the market, as China is the engine of growth for the global market and is expected to account for about half of this year's rise of 890,000 barrels a day in global oil-demand growth, according to the U.S. Energy Information Administration.

The dimmer China outlook came amid expectations that the Organization of the Petroleum Exporting Countries will keep output policy unchanged this week. Analysts said steady OPEC production amid rising supplies from the U.S. and other non-OPEC producers will keep pressure on prices amid modest demand growth.

"Lower global oil demand, rising supplies and higher inventories are a cocktail for lower prices," analysts at Bank of America Merrill Lynch warned in a research note in which it cut its forecast for North Sea Brent crude-oil prices.

Analysts said sustained weakness in U.S. equities and expectations that upcoming inventory reports will show that high U.S. inventories of crude oil and gasoline didn't decline much last week inspired sellers Wednesday.

Light, sweet crude oil futures for July delivery on the New York Mercantile Exchange settled 2%, or $1.88, lower at $93.13 a barrel. That's the lowest settlement since May 1. The 2% drop was the second such drop in a week, as concerns that the Federal Reserve was weighing a move to reduce its massive stimulus program hit prices last Wednesday.

North Sea Brent crude oil for July delivery on the Intercontinental Exchange settled 1.7%, or $1.80 a barrel, lower at $102.43 a barrel.

Bank of America Merrill Lynch analysts lowered their Brent price forecast to $103 a barrel from $111 a barrel for the second half of this year and cut the 2014 forecast to $105 a barrel from $112 a barrel.

Mark Waggoner, president of Excel Futures, said he expects Brent crude oil to break below $100 a barrel in the aftermath of the OPEC meeting, where the group is expected to keep output policy unchanged. He said he sees potential for Brent to trade to a two-year low of $90 a barrel in two to three months. Brent hasn't settled below $100 since May 1.

Ali al-Naimi, oil minister for Saudi Arabia, the de facto leader of OPEC, expressed content with current oil prices, raising the likelihood that ministers won't change output policy at their Friday meeting in Vienna.

"Prices are at the level suitable for producing and consuming nations and the petroleum industry," said Mr. al-Naimi, who represents the world's biggest oil exporter, in comments to the state-run Saudi Press Agency.

Andy Lebow, an oil broker at Jefferies Bache in New York, said the Saudi comments suggest "it's going to be policy as usual" for OPEC.

But he cautioned that the exporters group will have to adjust at some point to accommodate rising U.S. output and increased flows from a rebuilding Iraq. "They are postponing the inevitable. They are going to have to deal with it, but it's not going to be right now" he said.

Analysts surveyed by Dow Jones Newswires expect U.S. oil inventory data due Thursday to show gasoline stocks dropped a slim 200,000 barrels last week ahead of the Memorial Day holiday weekend, which kicks off the summer driving season.

If the forecast is right, gasoline stocks will be 10.1% above year- earlier levels, the biggest surplus since October 2009.

Analysts expect the data, due at 11 a.m. EDT Thursday, also to show crude-oil stocks, which stand near their highest levels since April 1981, dropped by 400,000 barrels last week, as refiners lifted operations relatively to capacity by a modest 0.4 percentage point. Distillate stocks (diesel/heating oil) are expected to show a 200,000-barrel increase.

Reformulated gasoline blendstock futures for June delivery settled 1.7%, or 4.97 cents, lower at $2.8031 a gallon, the lowest price since May 2.

June-delivery heating oil settled 3.71 cents lower at $2.8695 a gallon.

Write to David Bird at david.bird@dowjones.com

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