Oil prices continued falling Thursday, dropping to near $96 a barrel on expectations that global oil demand growth will slow this year, particularly in the U.S.
The Paris-based International Energy Agency said world demand for oil would be less than previously expected due to persistently high prices and lower expectations of economic growth in advanced economies.
The IEA now expects global oil demand to reach 89.2 million barrels a day in 2011 — a rise of 1.3 million barrels a day over 2010 but 190,000 barrels a day less than last month's forecast.
Gasoline at $4 a gallon "is likely to yield an anemic U.S. driving season," the IEA said in its monthly oil market report. "This is the main change to our demand forecast — a weaker 2011 profile in North America."
By early afternoon in Europe, benchmark crude for June delivery was down $2.19 to $96.02 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $5.67 to settle at $98.21 on Wednesday.
In London, Brent crude for June delivery was down $1.77 to $110.80 a barrel on the ICE Futures exchange.
Markets also expected U.S. energy demand to face headwinds from the possible end of an aggressive monetary stimulus.
The second round of a Federal Reserve program of buying Treasury bonds, known as quantitative easing, has helped boost the money supply and weaken the U.S. dollar, making commodities such as oil cheaper for investors with other currencies.
The bond buying program is scheduled to end next month, and traders are struggling to gauge the impact on crude prices.
"The major policy that has shaped oil prices is winding down," Cameron Hanover said in a report. "As long as the Fed does not come up with a third round of quantitative easing, the major reason for oil price strength will be gone."
Oil prices have gyrated sharply since touching a 30-month high at almost $115 on May 2.
The Energy Information Administration said Wednesday that U.S. gasoline demand dropped 2.4 percent last week, the largest drop in seven consecutive weeks of declines, while oil supplies grew last week by 3.8 million barrels, more than twice as much as what analysts expected.
"The world economy is clearly slowing," said Capital Economics in a report. "Rather than being in the early stages of a super-cycle, the prices of many industrial and agricultural commodities seem more likely to be forming bubbles which are set to burst."
In other Nymex trading in June contracts, heating oil lost 2.81 cents to $2.8702 a gallon and gasoline dropped 4.34 cents to $3.0794 a gallon. Natural gas futures were down 5.4 cents at $4.127 per 1,000 cubic feet.
-- Associated Press