The price of oil fell back below $106 a barrel Thursday after a report from the International Energy Agency said oil supplies would exceed the expected rise demand in 2014, partly on the back of growing production in North America.
By early afternoon in Europe, benchmark crude for August delivery was down $1.06 to $105.46 in electronic trading on the New York Mercantile Exchange. Earlier in the session, the Nymex contract peaked at $107.45. The last time oil was above $107 was in March last year.
The contract vaulted $2.99 to $106.52 on Wednesday after the Energy Department said U.S. crude supplies fell by 9.9 million barrels in the week ended July 5. Gasoline supplies fell by 2.6 million barrels. The price of oil has shot up $11 a barrel in two weeks on rising demand in the U.S. and political upheaval in the Middle East.
In the past two weeks, oil supplies have dropped 20.2 million barrels, which is slightly more than one day's consumption for the U.S., while gasoline supplies have fallen 4.3 million barrels.
While there seems to have been a significant rise in U.S. oil demand in the past couple of weeks, the longer-term outlook remains uncertain.
"There is little evidence that the stronger U.S. economy is leading to a recovery in U.S. oil demand," said commodities analyst Caroline Bain of the Economist Intelligence Unit. "While geopolitical risk, related to the unrest in Egypt and the Middle East more generally, is currently buoying oil prices, if this risk were to fade, there will be few pillars of support for the oil market in the second half of this year."
On a similar note, the Paris-based EIA said expectations that forecasts for 2014 should give those betting on rising oil prices "some cause for alarm."
The IEA expects supply growth to result in an additional 1.3 million barrels of oil a day in 2014, while global demand is seen growing by just 1.2 million barrels a day next year.
"Non-OPEC supply growth looks on track to hit a 20-year record next year," the IEA said Thursday in its latest monthly oil market report. "While demand growth is also forecast to pick up momentum ... this will still fall short of forecast non-OPEC supply growth."
The IEA pointed to growing oil production in the United States and Canada as the key source of the extra supplies.
"North American supplies are set to grow strongly, outpacing declines elsewhere," the IEA said.
While the IEA also upgraded its forecast for U.S. oil demand this year, it was adjusted to show roughly flat growth, rather than the marginal contraction expected earlier.
Brent crude was down 26 cents to $108.25 a barrel on the ICE exchange in London.
In other energy futures trading on Nymex:
— Wholesale gasoline dropped 2.5 cents to $2.9899 a gallon.
— Natural gas fell 2.8 cents to $3.652 per 1,000 cubic feet.
— Heating oil added 0.9 cent to $3.0026 a gallon.