Oil drops below $79 as IEA warns of risks

Oil fell below $79 on Wednesday, after a report from the International Energy Agency (IEA) warned of risks to demand. Economic fears and a sharp fall in equities deepened bearish sentiment.

The IEA, energy adviser to 28 industrialized countries, slightly increased its forecasts for global crude demand for this year and next in its August report from the previous month. It warned, however, that if the global economy proved weaker than expected, any rise in fuel consumption could be wiped out.

Sabine Schels, energy strategist at Bank of America Merrill Lynch, said: “The report concurs with our view that global demand growth is slowing in the key economies, and that doesn’t bode well. So the recovery is stalling, but it’s unlikely that we will get a double-dip recession.”

US crude for September delivery was down $1.45 at $78.80 a barrel at 1340 GMT. Front-month ICE Brent crude fell $1.30 to $78.30 a barrel.

A rise in equity markets last week helped crude to rise above $80, according to analysts. On Wednesday, Japan’s Nikkei 225 ended sharply down, and European equities fell on fresh fears over the global economy, hitting sentiment towards oil.