Oil price approaches six-year low

West Texas Intermediate for March delivery slumped to $44.21 a barrel

New York oil prices tumbled close to six-year lows today, as record-high US crude inventories deepened worries over the global supply glut.

West Texas Intermediate (WTI) for March delivery slumped to $44.21 a barrel, which was just one cent above the March 2009 low of $44.20 hit two weeks ago.

The contract later stood at $44.44, down one cent from yesterday's close.

European benchmark Brent North Sea crude for March rose 43 cents to stand at $48.90 a barrel in London midday deals.

"As a result of another sharp build in US oil stocks, WTI is hovering dangerously around the $44 handle," said Forex.Com analyst Fawad Razaqzada.

"A potential break below here may encourage fresh selling which could see prices take another leg lower as there is little technical support seen until the next psychological level of $40 a barrel," he told AFP.

Crude futures dived yesterday after official data showed US crude stockpiles surged by 8.9 million barrels to 406.7 million in the week to January 23.

The overall level of stockpiles was the highest since the US government began keeping weekly records in 1982.

In reaction, WTI dropped $1.78 in New York while Brent fell $1.13 in London.

"Crude oil stocks now find themselves at their highest level since the data series began more than 30 years ago and are 17% above the five-year average," added Commerzbank analysts.

"The lion's share of the inventory build took place on the US Gulf Coast, where the biggest storage capacities are to be found. Crude oil stocks at Cushing also grew by a significant two million barrels, meaning that the inventory build there has totalled a good eight million barrels since the beginning of the year."

Daniel Ang, investment analyst at Phillip Futures in Singapore, said the stockpiles surge came as "no surprise" as refinery utilisation rates in the world's top crude consumer have been low.

However, "what is really shocking is that US production still continues to increase despite low crude prices", Ang said.

"Without a drop in US crude production, it is going to be an uphill battle for oil bulls," he added.

The oil market has lost more than half its value since June last year when crude was sitting at more than $100 a barrel due to a supply glut, boosted largely by robust US shale oil production, and weak global demand.

The problem was exacerbated in November after the OPEC oil cartel insisted that it would maintain output levels despite plunging prices. The 12-nation group pumps about 30% of global crude.

Analysts said oil was also facing downward pressure after a fresh US Federal Reserve policy statement released Wednesday suggested no deviation from the central bank's plan to begin hiking interest rates around the middle of the year.

The Fed has kept its key federal funds rate pegged between zero and 0.25% since late 2008 to support the US economy's recovery from the deep 2008-2009 recession.

The central bank's "hawkish sentiment" caused the US dollar to rise, making dollar-priced crude more expensive to buyers outside the US and denting demand, Ang said.