Oil prices drop toward four-month lows on glut worries, equities sell-off

Oil prices fell towards four-month lows on Tuesday, dropping for a fifth straight session on persistent worries about a global supply glut, while stock market sell-offs on both sides of the Pacific also rattled investor sentiment.

Asian stocks fell to three-week lows, with a deepening rout in Chinese stocks heightening fears about the financial stability of the world's second biggest economy and top energy consumer.

Uncertainty over the health of the Chinese economy, reflected in the sell-off in the stocks, lacklustre US oil demand and increasing oil supplies all added to investors' negativity about oil prices, said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance

"Technical levels continue to break. It's a trend which says investors are selling," Barratt said. "It's all about sentiment - it's a one-way traffic."

Brent dropped 36 cents to $53.11 as of 0430 GMT after a 2% drop in the previous session. It dipped to $52.89 earlier, hovering close to a four-month low of $52.83 reached on Monday.

US crude dropped 20 cents to $47.19 a barrel after ending the previous session down 75 cents. It fell below $47 post-settlement, the lowest since March 24.

The bearish sentiment will continue, testing technical support levels, although oil prices are expected to end 2015 higher than at current levels, according to a note from Phillip Futures on Tuesday.

"For today, we believe the next support for WTI and Brent to be at $46.73 and $52.40. Provided the bearish trend continues, lower supports of $45.90 and $50 could be tested," it added.

Investors are now eyeing weekly data on US inventory levels for further trading cues.

US commercial crude oil stocks likely slipped last week after crossing the five-year seasonal average build in the previous week, a preliminary Reuters poll of analysts showed ahead of industry and official weekly reports.

Crude stocks fell about 300,000 barrels to 463.6 million barrels in the week ended July 24, analysts estimated.

"We're not seeing the level of demand in the U.S. one usually expects related to the summer drive-time," Barratt said.

"The world is awash with oil," he added.