A downbeat outlook for oil demand from a top energy watchdog and fears of rising U.S. output sparked a sell-off in crude futures this week, but analysts say the market was already poised for a pullback.
Brent was trading at $61.63 on Wednesday, while WTI was at $55.15, both down about 1 percent after posting their worst daily performance in about a month on Tuesday.
It is a pullback from a recent spike fueled by signs of improving oil demand and a month of escalating tensions in the Middle East that threatened output from top OPEC producers.
U.S. crude 15-day performance
But on Tuesday, the International Energy Agency lowered its outlook for demand growth in both 2017 and 2018, in part because of warmer than expected winter weather. The energy policy adviser to developed nations knocked down its growth forecast by 100,000 barrels a day for each year, projecting that oil markets will remain oversupplied in the first half of 2018.
Global demand will struggle to sop up rising output by producers outside the 14-member OPEC cartel, particularly from the United States, IEA said in its monthly oil report. Recent weekly figures show U.S. drillers are pumping near all-time high levels.
"This is why, absent any geopolitical premium, we may not have seen a 'new normal' for oil prices," IEA concluded.
That view contradicted OPEC's projection, which had been released one day earlier. The producer group raised its forecast for demand growth by 130,000 barrels a day in 2018.
Adding to the commotion, oil futures got caught in a general commodities sell-off following weaker-than-expected economic data from China, which drives global commodity consumption.