[MELBOURNE] Oil's seven-day slump to the lowest level in six years is poised to drive prices back into a bear market as record US stockpiles worsen a global supply glut.
Futures fell as much as US$1.02 to US$42.44 a barrel in New York. A close at this level would be 20 per cent below its peak last month, meeting a common definition of a bear market. Crude inventories probably expanded by 4.4 million barrels to 453.3 million last week, according to a Bloomberg News survey before government data on Wednesday. Supplies increased by 10.5 million barrels, the industry-funded American Petroleum Institute was said to have reported.
Oil has renewed its collapse after losing 50 per cent in 2014 amid speculation that a slowdown in US drilling isn't enough to shrink a global oversupply. Options traders have become the most bearish in at least five years amid signs that rising stockpiles may strain the nation's storage capacity.
"The ongoing deterioration in the supply-demand picture continues without any sign of interruption," Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. "With concerns about the demand side of the equation, it looks like we're heading toward US$40 in the next couple of sessions." West Texas Intermediate for April delivery was at US$42.66 a barrel in electronic trading on the New York Mercantile Exchange, down 80 US cents, at 1:30 pm Singapore time. The contract dropped 42 US cents to US$43.46 on Tuesday, the lowest close since March 2009. A settlement at US$42.82 or lower would be 20 per cent below this year's high of US$53.53, pushing crude into a bear market. The volume of all futures traded was about 2 per cent above the 100-day average.
Brent for May settlement slid as much as 33 US cents, or 0.6 per cent, to US$53.18 a barrel on the London-based ICE Futures Europe exchange. It decreased 43 US cents to US$53.51 on Tuesday. The European benchmark crude traded at a premium of US$8.72 to WTI for the same month.
US crude inventories have gained for nine weeks through March 6 to 448.9 million barrels, the most in weekly Energy Information Administration data dating back to August 1982. Production accelerated to 9.37 million barrels a day, the fastest pace since at least January 1983, according to the Energy Department's statistical arm.
The nation's oil output will probably start contracting by the end of the year because some companies can't continue to operate at current price levels, Vitol Group's Ian Taylor said in Cape Town on Tuesday. The chief executive officer of the world's largest independent oil trader predicted no return to US$100 a barrel within three years.
Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, climbed by 3 million barrels last week, the API in Washington reported, according to a person with knowledge of the data.
WTI's 14-day relative strength index is at 31.5, the lowest level since Jan 15, data compiled by Bloomberg show. A reading below 30 typically signals the market is oversold.