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Oil drops to two-year lows, capping quarter-long rout
[NEW YORK] World oil prices tumbled to their lowest in more than two years on Tuesday, with US crude posting its biggest daily decline since 2012, as a drop in gasoline prices and end-of-quarter selling capped three months of steep losses.
Oil prices in the United States and Europe have plummeted since the end of June as output from the Middle East, Africa and the United States swamped the market and outweighed fears of supply disruptions from war-torn oil-producing regions.
Falling gasoline prices and a strong dollar contributed to losses on Tuesday. New York RBOB gasoline for October delivery , which expired Tuesday, fell 4 per cent, reversing more than half of its gains from a two-week rally that traders had attributed to a short squeeze on local supplies.
Brent for November delivery fell US$2.53 to settle at US$94.67 a barrel, marking a 16 per cent loss for the quarter, the biggest in two years. Brent has fallen 19 per cent since mid June, putting the benchmark near bear market territory.
US crude dropped US$3.41 to US$91.16 a barrel, its biggest one-day loss since November 2012. US crude ended down 12 per cent for the quarter, also its biggest quarterly loss in two years.
During the session, Brent's premium over US oil dipped to the narrowest in 13 months, touching US$2.52 a barrel. The premium later grew back to more than US$3 a barrel.
Oil prices were also pressured by the US dollar's surge to a four-year high against a basket of currencies, and a two-year high against the euro.
End-quarter position squaring by funds and possible oil hedging from Mexico may have also weighed, traders said.
They also cited Reuters' OPEC survey showing that supply from the producer group in September jumped to its highest in almost two years, due to further recovery in Libya and higher output from Saudi Arabia and other Gulf producers. "The market remains very oversupplied, and the OPEC survey confirms the market's fears that the group hasn't cut back supplies," said Amrita Sen at Energy Aspects in London. "With end-of-quarter rebalancing we've seen more selling triggered as investors change their allocations, and with the dollar's strength commodities are getting sold across the board." As fundamental factors pointed toward ample supply and slack demand in the near term, firm US and Chinese economic data did little to support prices.
Activity in China's vast factory sector showed signs of steadying in September as export orders climbed, a private survey showed on Tuesday. This eased fears of a hard landing but pointed to a still sluggish economy.
US crude oil and distillate inventories likely rose slightly in the week ended Sept 26, according to forecasts ahead of weekly American Petroleum Institute data due later on Tuesday. Gasoline inventories probably fell. - Reuters