Brent drops to 27-month low on IMF growth cut

Brent oil slid to its lowest level since June 2012 after the International Monetary Fund cut global economic growth forecasts. West Texas Intermediate fell before data that may show US crude stockpiles rose.

Futures dropped 1.5 per cent in London, falling for a second day. The world's economy will expand by 3.8 per cent next year, down from a forecast of four per cent in July, the Washington-based International Monetary Fund (IMF) said in a report on Tuesday. Crude oil inventories probably grew by two million barrels last week, according to a Bloomberg News survey before data from the Energy Information Administration on Wednesday. "The IMF growth downgrade reinforces the narrative of the last few weeks, meaning that demand is set to remain soft," Michael Hewson, an analyst at CMC Markets, said by e-mail.

"It looks like we're set for a test of the 2012 lows on Brent."

Brent for November settlement slid as much as $1.35 to $90.76 a barrel on the London-based ICE Futures Europe exchange and was at $91.18 at 1:18 p.m. London time. The front-month contract dropped as low as $88.49 a barrel in 2012. The volume of all futures traded was 32 percent above the 100-day average for the time of day. Prices have declined 18 percent this year.

WTI for November delivery decreased as much as $1.46 to $87.39 a barrel in electronic trading on the New York Mercantile Exchange. The European benchmark crude traded at a premium of $3.20 to WTI on ICE, compared with $3.26 yesterday.

Crude Inventories

WTI fell 4.1 percent last week, the most in two months, after the Organization of Petroleum Exporting Countries boosted production in September to the highest in a year. U.S. crude inventories expanded by 5.1 million barrels in the week ended Oct. 3, the industry-funded American Petroleum Institute reported yesterday, according to Bain Energy.

Gasoline supplies probably shrank by 500,000 barrels last week, based on the median estimate in the Bloomberg survey of 10 analysts before the EIA report. Distillate inventories, including diesel and heating oil, are projected to have decreased by 1.25 million barrels.

WTI will average $94.58 a barrel in 2015 versus a September prediction of $94.67, the EIA said in its monthly Short-Term Energy Outlook yesterday. The agency reduced its Brent estimate for next year to $101.67 a barrel, from $103 last month.

Price Floor

Brent crude could drop to $80 a barrel before triggering a slowdown in investment from U.S. shale-oil drillers, Fitch Ratings said in report today. A price drop to $75 to $85 would have "relatively rapid impact on production," suggesting this is price floor, it said.

Brent's 14-day relative strength index is at about 23 today, data compiled by Bloomberg show. That's a seventh day below 30, signaling that the market is oversold and further losses probably can't be sustained.

The average price of benchmark OPEC crudes dropped to $89.37 a barrel yesterday, the group's Vienna-based secretariat said by e-mail today. That's the first time in more than two years that the weighted average of the main grades produced by the Organization of Petroleum Exporting Countries slipped below $90.