Oil rout deepens as glut pushes U.S. crude to new lows

By Libby George

LONDON (Reuters) - Oil futures extended their decline on Wednesday, with U.S. crude touching its lowest since 2003, as a global supply glut bumped up against bearish financial news that sparked deeper worries over demand.

U.S. crude oil dropped more than 4 percent in early trading, falling to as low as $27.32 a barrel. It regained ground to trade down 92 cents at $27.54 as of 1450 GMT.

The contract settled down 96 cents, or 3.26 percent, in the previous session.

"You need the low price to slow down shale much faster," said Bjarne Schieldrop, chief commodities analyst with SEB in Oslo. He added that a "very broad-based sell-off across assets and across the world" amplified pressure on oil prices.

Brent futures fell by 80 cents to $27.96 a barrel, but dropped as low as $27.70 earlier in the day, not far from Monday's 12-year trough of $27.67. They settled up 21 cents, or 0.7 percent, in the previous session.

A Venezuelan request for an emergency OPEC meeting to discuss steps to prop up prices did little to stem declines.

World equities sank to their lowest level since 2013, and the index's fall so far in January is already 9.9 percent, the biggest drop since 2009.

While the International Monetary Fund's chief economist warned that financial markets seemed to be over reacting to falling oil prices and the risk of a downturn in China, demand concerns compounded an already bearish energy market.

The International Energy Agency warned that the world could "drown in oversupply" of oil in 2016, with Iran's exports adding to the excess.

"It's a continuous story that pushes prices lower and lower," said Hans van Cleef, senior energy economist with ABN AMRO. "We should see an effect on production."

Russia's largest private oil producer said on Wednesday it expects the country's output to drop for the first time in many years in 2016.

"Today, the oil industry is near a survival line ... Unfortunately we are cutting drilling," Lukoil's chief executive Vagit Alekperov said.

A report said Canada's oil-sands producers were now losing money on every barrel, while U.S. shale producers were "burning cash" at current prices.

U.S. commercial crude oil stocks were forecast to have risen by 3 million barrels last week, a Reuters survey taken ahead of weekly inventory data showed on Tuesday. A report on stocks from the American Petroleum Institute, a U.S. industry group, is due later on Wednesday.

(Additional reporting by Keith Wallis in Singapore; Editing by Dale Hudson, Mark Potter and Adrian Croft)