Brent Hits 16-month Low Below $99 on Strong US Supply Growth
Brent crude dropped to a fresh 16-month low below $99 a barrel on Wednesday with rising supplies and weak demand helping extend losses into a fifth session.
Brent has fallen by more than 14 per cent since hitting a year high above $115 a barrel in June, with fast-rising US output and the return of exports from Libya creating a market that looks increasingly over supplied.
While a larger-than-expected drop in weekly US crude stocks lent some support on Wednesday, more pressure came from a firmer US dollar which makes commodities priced in the greenback more expensive for holders of other currencies.
The dollar index stood near a 14-month high, with some investors betting the US Federal Reserve would raise interest rates earlier than previously thought.
Brent crude for October delivery hit a low of $98.80 hit, the lowest intraday price since May 1, 2013. It was trading down 9 cents at $99.07 a barrel at 0914 GMT.
US crude was up 5 cents at $92.80 a barrel with its discount to Brent narrowing to just over $6 a barrel, the lowest since mid-August.
"I wonder how much further Brent could fall after falling below the psychologically important $100," said Ken Hasegawa, a commodity sales manager at Newedge Japan.
"America has entered seasonal (refinery) maintenance and demand is weak."
Oil prices on both sides of the Atlantic have dropped over the past three months, dragged down by soaring US shale oil production which has replaced many imports from West Africa, Europe and other regions, leading to a supply glut in the Atlantic Basin and Asia.
The US Energy Information Administration (EIA) said Tuesday that US output in August hit its highest level since 1986.
The United States is the world's largest oil consumer and as recently as 2010 was reliant on imports for almost 50 percent of its consumption. That is expected to fall to just over 20 per cent next year, the EIA said.
Traders are increasingly moving oil into storage in a bid to sell it forward for later delivery at a higher price, with spot prices falling to an increasing discount due to increasing supplies, a market structure known as contango.
Chinese trader Unipec has booked the world's largest ship, a 3.2 million barrel capacity supertanker, to store Russian oil until prices recover, trading sources said this week, with analysts estimating about 50 million barrels of oil have already moved into floating storage.
US Crude Stocks
Despite stronger US production, data from industry group the American Petroleum Institute showed a 1.9 million barrel decline in US crude stocks last week, versus analysts' expectations for a drop of 1.1 million as refiners produced more gasoline and diesel ahead of seasonal maintenance work.
Inventories at Cushing, Oklahoma, the closely-watched delivery point of the US crude oil contract, fell 261,000 barrels, the API said, while gasoline and distillate stocks rose.
Weekly government stockpile data from the EIA will be released later in the day at 1430 GMT.
Investors are also eyeing the Gulf Arab oil ministers' annual meeting on Thursday in Kuwait which could include discussions about oil prices now that Brent has dropped below the $100 a barrel level.
The Organization of the Petroleum Exporting Countries (OPEC) releases its monthly market outlook later on Wednesday.
Ukraine also remained in focus.
The United States was putting the finishing touches on possible new sanctions on Russia's defence, energy and financial sectors over its intervention in Ukraine, the US State Department said on Tuesday.
European Union Trade Commissioner Karel De Gucht called on the United States to export oil and natural gas to Europe under a transatlantic trade deal, in part to reduce the region's dependence on Russian energy resources.
Copyright: Thomson Reuters 2014