VIENNA, Austria – Crude futures fell nearly $2 a barrel Tuesday on the heels of a revised forecast from the International Energy Agency (search) for slowing growth in oil demand this year.
Light, sweet crude for May delivery fell $1.85 to settled at $51.86 a barrel on the New York Mercantile Exchange (search), where unleaded gasoline futures fell 1.6 cent to close at $1.5338 a gallon. Heating oil futures declined by 2.18 cents to $1.4653 per gallon.
On the International Petroleum Exchange (search) in London, Brent crude fell $1.23 to $51.98 a barrel.
Oil prices are more than $6 below the intraday high set last week, though they remain 37 percent higher than a year ago.
In its report, the Paris-based IEA suggested that rising U.S. interest rates and energy costs would reduce world hunger for oil this year.
It lowered its estimate for world oil demand growth by 50,000 barrels a day to 1.77 million barrels a day, while forecasting average demand at 84.27 million barrels a day — slightly lower than the previous figure.
It also said that government measures in Asia — and Chinese oil demand growth that was only half of estimates last year — also would act as a brake on the market.
"Fears of a surge in second-quarter Chinese demand are receding," the IEA said, and noted that China's oil demand growth was significantly lower in first two months of the year.
Some analysts said they expected markets to calm in the coming weeks.
"The hedge funds have become — if not absolutely bearish — at least feeling that the highs are behind us and will have to wait until the third quarter to take prices back toward their $60 (a barrel) target," said analyst Deborah White of SG Securities in Paris.
Still, others said that over the short term, the market could still reach upward.
"The rise last night shows that the market is still in a bullish mood, and around the $53 mark, people still view it as relatively cheap," said Daniel Hynes, energy analyst at ANZ Bank in Melbourne, Australia.
Hynes said the market will remain "volatile," and he expects prices to rise next week.
Overall, crude prices have eased since last week on a build in crude stocks in the United States and comments from the Organization of Petroleum Exporting Countries (search) on a possible production increase next month.
The 11-member oil cartel raised output limits by 500,000 barrels per day in March to 27.5 million barrels per day in a bid to cool prices. It left room for a second 500,000 barrels per day increase before a June meeting if prices failed to drop below $55. The group began talks on the second rise last weekend and said then it could decide within two weeks.
White said that no matter what OPEC decides, the Saudis, the group's main producers, will "do what they consider the right thing," and continue to increase output.
Vienna's PVM GmbH energy consultants also noted "Mideast Gulf producers ... encouraging stockbuilding in the coming months to avoid a supply crunch at the end of the year."
The IEA report said OPEC produced an extra 290,000 barrels of oil a day in March, mainly due to Saudi Arabia and the United Arab Emirates.
Traders were now beginning to look toward the midweek Department of Energy petroleum stocks report for clues on inventory levels in the world's largest energy consumer with the summer driving season now only weeks away.
Last week, the U.S. Energy Department said the nation's inventory of crude oil grew by 2.4 million barrels to 317.1 million barrels, or 8 percent higher than last year. Analysts are expecting another build when the data are released Wednesday.
Elsewhere, concerns over supply disruptions in Nigeria, the United States' fifth-biggest source of imports, eased as main oil unions withdrew their threat of a three-day strike that was supposed to start Monday, citing progress in labor negotiations.
Threats of labor action in Africa's largest producer has played a role in spiking crude prices in 2004 as the world watched demand rise in an era of thinning excess capacity.