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NEW YORK (Reuters) - Oil prices dropped 3 percent Wednesday after the International Energy Agency said growth in world demand was weakening and the U.S. government reported an increase in crude inventories to six-year highs.
U.S. light crude for June delivery settled down $1.62 at $50.45 a barrel -- the first daily loss in six trading days.
Prices started falling after the International Energy Agency's monthly Oil Market Report said higher fuel costs and weakening economic growth slowed demand growth in China, Europe and the United States during the first quarter.
Growth in China's demand, an explosive 19.3 percent in the first quarter last year, slowed to 4.5 percent in the same period of 2005.
The slowdown in growth means the outlook for fourth-quarter world demand does not appear as likely to stretch producer countries as in the same period last year, the IEA said.
Typically, fuel demand in the fourth quarter hits an annual peak as consumers in the northern hemisphere build winter stocks.
The U.S. Energy Information Administration (EIA) Tuesday lowered its estimate of U.S. oil demand in the second quarter by 80,000 bpd to 20.59 million bpd but said crude oil prices could stay above $50 in both 2005 and 2006.
The EIA's weekly petroleum status report Wednesday showed crude stocks -- already at the highest since July 1999 -- rising a further 2.7 million barrels last week to 329.7 million.
Refined product stocks also increased, although the 200,000-barrel gain in gasoline stocks to 213.7 million was less than expected.
The IEA said that rising stocks will not necessarily reduce prices, as a lack of spare production and refinery capacity meant that supplies were still under strain.
"Total oil stocks seem neither high nor sufficient to offset current capacity constraints and increasing future demand," it said.
"The U.S. crude market could tighten rapidly, particularly if currently unfavorable price differentials continue to hamper imports," it said.
Click here for CNN/Money's special report -- "Oil Crunch 2005."
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