IEA Cuts Global Demand Forecast

Oil fell a dollar on Friday after the International Energy Agency (IEA) cut its global oil demand forecast and said high prices were curbing consumption.   U.S. light crude was $1.02 lower at $72.30 a barrel while London Brent crude lost 87 cents to $72.56.

In a report on Friday, the IEA said high prices were having an impact on fuel use and cut its 2006 forecast for demand growth by 220,000 barrels per day (bpd) to 1.25 million bpd.  The agency also lowered the world's requirement for OPEC oil by 200,000 bpd to 29.2 million bpd for the year.  "It's becoming increasingly clear that the price is having quite a strong effect on demand growth," said Lawrence Eagles, head of the IEA's Oil Industry and Markets Division.

Eagles said the overall crude market remained tight, though concerns about strained gasoline supplies ahead of the U.S. peak summer driving season should ease as refiners crank up activity.  "We have still got a situation where demand was higher than supply. We're still looking at a tight market situation," he said.  "But the U.S. gasoline situation is going to ease."

Traders have said the rally earlier this week was driven by gains across the commodities complex and technical strength as much as by news and that prices could remain volatile and directionless as speculative funds dipped in and out of the market.  "If it started to move toward $50, that would be a big deal, or toward $100, then we'd start to worry about inflation, but a dollar move in this market is irrelevant," one trader said.