Oil price drops to near $85 on lower demand forecast, Greek debt concerns

The price of oil slipped to near US$85 a barrel Tuesday as the International Energy Agency lowered its forecast for oil demand and said global supplies were growing.

By early afternoon in Europe, benchmark West Texas Intermediate crude for December delivery was down 44 cents to US$85.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 50 cents to finish at US$85.57 per barrel on the Nymex on Monday.

The IEA said in its monthly oil market report that it had cut slightly its expectations of how much oil the world will need this year to 89.6 million barrels a day, 80,000 barrels a day less than its forecast from a month ago, on persistent economic weakness in Europe and the impact of hurricane Sandy in the U.S.

The Paris-based agency also said global oil supply rose 800,000 barrels a day in October, to 90.9 million barrels a day, “as rebounding supplies from the Americas and the North Sea offset a slight decline in OPEC crude supplies.”

The IEA also said that Iran’s oil output had broken a string of seven straight months of declines as China and South Korea appeared to be importing more crude from the Islamic Republic. Iran has been hit by hard economic sanctions by the West over its nuclear program.

Crude oil prices were also affected by renewed uncertainty over debt crisis in the European Union.

Greece’s international creditors failed to agree Monday on how to get the country’s bailout program back on track. They will meet again Nov. 20 to continue discussing the release of the next batch of rescue loans totalling €31.5 million (US$40 billion).

The European Central Bank, the International Monetary Fund and the European Commission have twice agreed to bail out Greece, pledging a total of €240 billion in rescue loans. The country has received about €150 billion of those loans so far.

Meanwhile, the U.S. still appears headed for the so-called fiscal cliff — a combination of tax hikes and government spending cuts that will take effect Jan. 1 unless President Barack Obama and Congress can reach a compromise to avert it. Economists believe that would hurt growth in the world’s largest economy and possibly risk a recession.

In London, Brent crude, used to price international varieties of oil, was down 85 cents to US$108.23 a barrel on the ICE Futures exchange.

Among other energy futures on the New York Mercantile Exchange, heating oil was down 1.52 cents at US$2.984 a U.S. gallon (3.79 litres), gasoline futures dropped 1.38 cents to $2.625 a gallon and natural gas was up 2.9 cents to $3.599 per 1,000 cubic feet.