Oil slips to $111 on demand concerns

London: Oil slipped to around $111 (Dh407) a barrel yesterday, extending the previous day's $5 slide, after the International Energy Agency cut its global demand forecast and China raised banks' reserve requirements.

In a monthly report, the IEA cut its 2011 global oil demand growth forecast to 1.29 million barrels per day (bpd) from 1.43 million bpd, citing high prices and a weaker economic outlook for developed economies.

Brent crude fell $1.32 to $111.25 a barrel, adding to Wednesday's $5 drop, which was sparked by rising US gasoline inventories and falling domestic demand for the fuel. US crude lost $1.91 to $96.30.

"We clearly have seen demand growth slowing compared to last year's level and we're seeing it very much concentrated where the price feed through is most direct, notably in North America in terms of gasoline," said David Fyfe, head of the IEA's Oil Industry and Markets division.

Choppy

Trade remained choppy, with prices paring losses after a report showed US initial jobless claims fell last week. Wednesday's tumble in prices drove oil volatility to its highest close since mid-March.

Oil also fell after the Chinese tightening move, which comes despite initial signs of slowing in the economy. China is the world's second-largest oil consumer and the source of much of its demand growth.

Gold and copper also fell and silver was set for its biggest two-week slide in nearly 25 years as another wave of selling hit commodities, exacerbated by a stronger US dollar.

The IEA said gasoline demand could "disappoint" this year as gasoline near $4 a gallon at the pump prompts Americans to drive less.

Dampener

"It is becoming increasingly clear that the high price level is dampening gasoline demand," said analysts at Commerzbank in a report.

There could be further losses ahead for crude, according to technical price charts. Brent could fall toward $105.21, according to Reuters analyst Wang Tao. It fell as low as $105.15 on May 6.