Oil prices fell about 3 per cent to a 10-month low in heavy trading on Wednesday, as nagging fears about the global crude glut fed a sell-off that was interrupted only briefly after news of a larger-than-expected drop in US inventories.
US crude futures touched a low of $42.13, the lowest intraday level since August 2016. They were at $42.36 at 1:28 pm 1728 GMT, down 2.6 per cent. Since peaking in late February, crude has dropped by more than 20 per cent. Rallies in that time have not been sustained as concern about inventories has prevailed over brief signals of rebalancing.
Brent crude futures
fell $1.34 to $44.68 a barrel. Opec members are considering further oil output cuts but should wait until the effect of the current reduced level of production is made clear, Iran said on Wednesday, hinting at possible further Opec action after oil sank to a seven-month low.
The US Energy Information Administration
said crude inventories declined by 2.7 million barrels in the latest week, exceeding expectations for a 2.1 million-barrel drop. This data supported prices only briefly.
Compliance with an agreement by the Organization of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day from January reached its highest in May.
However, production is rising in Nigeria and Libya, countries exempt from the deal, offsetting cuts by other Opec members. Nigeria's crude exports are set to surpass 2 million barrels per day (bpd) in August, highest in 17 months, as the country recovers from militant attacks that crippled production in 2016.
Investors were discouraged by data showing that oil refineries in China, the world's top crude importer, are cutting operations during the peak demand summer season.
So far this year, oil has slid 20 per cent, its weakest performance since 1997 for the first half of the year, a period when prices have tended to rise. Brent has risen in the first half of the year in all but six years over that period.
Oil prices ran up in late 2016 and in early 2017 in response to OPEC's efforts, but several weeks of surprising inventory figures shifted sentiment among speculators, who have shed long positions as the crude glut has persisted.
The December 2017 U.S. crude contract is at its biggest discount to December 2018 futures since July, a signal that traders anticipate an even longer rebalancing period.
Options activity picked up on Wednesday as well, as investors bought protection against further declines.
"Now everyone seems to be negative," said Commerzbank analyst Eugen Weinberg.
U.S. crude production has surged to 9.35 million bpd, nearing levels of top producers Russia and Saudi Arabia.
"We do not expect the drop in WTI prices to slow production growth in the near term with 2017 capex budgets and plans largely already set," said Kyle Cooper, consultant at ION Energy in Houston.