Oil falls near six-year low as US, Opec keep pumping amid glut

[TEXAS] Oil resumed its decline as Iran said Opec production may rise to a record after sanctions on the country are lifted and as US drilling activity increased.

Futures slid as much as 2 per cent in New York to trade near a six-year intraday low reached on Aug 14. The Organization of Petroleum Exporting Countries may boost output to 33 million barrels a day after Iran's international export restrictions are removed, according to the nation's Opec representative. The number of rigs seeking oil in the US rose by two to 672, the most since May, Baker Hughes Inc data show.

Oil has slumped more than 30 per cent from the June closing peak this year amid speculation the global surplus will be prolonged. While US crude stockpiles fell a third week through Aug 7, supplies remain more than 90 million barrels above the five-year average for this time of year.

"One overall big fundamental thing is the market is still heavily oversupplied, with Opec still flooding the market," Andy Sommer, an analyst at Axpo Trading AG in Dietikon, Switzerland, said by phone.

West Texas Intermediate for September delivery fell as much as 86 cents to US$41.64 a barrel on the New York Mercantile Exchange and was at US$41.82 at 9:52 am London time. The contract gained 27 cents to US$42.50 on Friday. The volume of all futures traded was about 30 per cent above the 100-day average. Prices have decreased 22 per cent this year.

Brent for October settlement dropped as much as 84 cents, or 1.7 per cent, to US$48.35 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of US$6.18 to WTI for the same month.

Prices also declined as the dollar strengthened following China's shift to a more market-oriented exchange rate. The dollar was stronger against most peers by 9:17 am in London. The MSCI Emerging Markets Index fell to an almost four-year low after China's shock devaluation of its currency last week focused investors on the vulnerability of other emerging economies.

"If the Chinese economy is really so weak, and weakens further and takes with it other Asian economies, then the demand recovery forecast in the third quarter is adrift," said Axpo's Sommer.

Drillers in the US, the world's biggest oil consumer, have added rigs to fields for the fourth straight week, Baker Hughes said on its website on Friday. While the number of active machines has climbed to 672, the total count is still down almost 60 per cent since December.

The US agreed to allow some crude to flow to Mexico in the latest step toward easing a 40-year ban on most domestic exports.

Producers including Exxon Mobil Corp. and ConocoPhillips have called for an end to US export restrictions after the drilling boom boosted the nation's output. Up to 100,000 barrels a day of light oil and condensate will be exchanged for heavy Mexican crude, according to state-owned Petroleos Mexicanos.

The global oil market is already in surplus by about 3 million barrels a day, with Saudi Arabia and Iraq responsible for Opec's oversupply in the past six months, Iran's state-run Islamic Republic News Agency reported Sunday, citing the nation's Opec representative Mehdi Asali.

BLOOMBERG