Oil sinks again on glut as U.S. crude hits new lows

By Libby George

LONDON (Reuters) - Oil futures fell further 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 far as $27.32 a barrel. It bounced back to trade down 70 cents at $27.76 as of 0945 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" would amplify pressure on oil prices.

"With oil being fundamentally weak, it should be moving down even further."

Brent futures fell by 75 cents to $28.01 a barrel, after trading as low as $27.77, not far from the 12-year trough of $27.67 hit on Monday. They settled up 21 cents, or 0.7 percent, in the previous session.

Asian equities hit four-year lows during the day's trading, partly as oil itself curbed investor appetite for risky assets. European stocks also opened under downward pressure.

While the chief economist of the International Monetary Fund warned that global financial markets seemed to be overreacting to falling oil prices and the risk of a sharp downturn in China's economy, demand concerns were piling on to already bearish energy market sentiment.

The International Energy Agency, which advises industrialised countries on energy policy, warned on Tuesday that the world could "drown in oversupply" of oil in 2016, with Iran's exports piling into the excess.

Markets were watching for signs that the price rout was stemming buoyant oil production, which has poured a record amount of crude into storage tanks worldwide.

An analyst report said Canada's oil-sands producers were now losing money on every barrel sold, while others warned that U.S. shale producers "were just 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. Official data from the U.S. government's Energy Information Administration will be out on Thursday, a day late due to a public holiday.

(Additional reporting by Keith Wallis in Singapore; Editing by Dale Hudson)