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OIL extended losses below US$50 a barrel, amid speculation that US inventories will expand, deepening a global supply glut that has driven prices to a five-year low.
Futures fell as much as 3.1 per cent in New York, declining for a fourth day.
Stockpiles in the world's biggest oil consumer probably rose by 750,000 barrels last week, a Bloomberg News survey showed ahead of a government report on Wednesday.
A gauge of the dollar held near a nine-year high, diminishing the investment appeal of commodities.
Oil slumped almost 50 per cent last year, the most since the 2008 financial crisis, after the Organisation of Petroleum Exporting Countries (Opec) resisted calls to cut output as it competes with US producers.
The market faces "more problems" this year, said Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at two million barrels a day.
Bill O'Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees US$2.4 billion, said: "The path of least resistance is lower.
"There is no bullish news. Opec refuses to cut production and there is no evidence of falling production outside of Opec."
West Texas Intermediate (WTI) for February delivery dropped 91 cents, or 1.8 per cent, to US$49.13 a barrel at 9.04am on the New York Mercantile Exchange, after touching US$48.47, the lowest since April 2009. The volume of all futures traded was about 60 per cent above the 100-day average for the time of day.
Brent for February settlement decreased US$1.12, or 2.1 per cent, to US$51.99 on the London-based ICE Futures Europe exchange; it had reached US$51.23, the lowest since May 2009. The European benchmark crude traded at a premium of US$2.88 to WTI on the ICE.
Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone: "The market is obsessed with the supply side. Prices have dropped too fast and too far, but with the market this negative, it's hard to see a trigger which could turn the sentiment. If US inventories are higher than expected, we could see Brent below US$50 this week."
US crude inventories probably increased to 386.2 million barrels in the week ended Jan 2, said the Bloomberg survey ahead of the release of the Wednesday weekly report of the Energy Information Administration (EIA). Inventories of crude and gasoline were at their highest seasonal level since EIA weekly data started.
The euro weakened against the dollar amid speculation that the European Central Bank has moved closer to large-scale sovereign-bond purchases, and as the Federal Reserve weighs raising interest rates. The Bloomberg Dollar Spot Index was at 1,142.97 after climbing to 1,143.4 on Monday, the highest since March 2009.
Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said: "The potential for more easing from Europe is putting more upward pressure on the dollar and downward pressure on oil.
"Supplies may continue to rise here in the US The supply glut is just weighing on everything."
Saudi Arabia, the biggest Opec producer, will keep a "solid will" and maintain the nation's stability even with falling crude prices, King Abdullah said on Tuesday in a speech read out by his crown prince.
"You cannot be blind to the tensions in the global oil markets ... these are not new developments and we have dealt with them in the past with a firm will and wisdom ... and we will deal with the new developments in the same vein."
He added that lower prices were caused by many factors, of which the most important was weakness in the global economy, and said that Saudi Arabia had faced similar market conditions before.
Saudi Arabia said last month it would not cut output to prop up oil markets even if non-Opec nations did so, leading to criticism from some other members of the group of producers who want Riyadh to act to defend prices.
US output climbed to 9.14 million barrels a day through Dec 12, the highest in weekly estimates that started in January 1983, said the EIA.
Opec's 12 members, which supply about 40 per cent of the world's oil, pumped 30.24 million a day in December, exceeding their collective target of 30 million for a seventh straight month, a Bloomberg separate survey of companies, producers and analysts showed.
Production may expand from fields in West Africa, Latin America, the US and Canada, in addition to increased supplies from Russia and Iraq, Morgan Stanley said in a report on Monday. Iran may boost overseas exports by about 500,000 barrels a day if international sanctions are lifted, the bank said. BLOOMBERG, REUTERS