Oil prices slump 2% as Wall Street slides

[NEW YORK] Oil prices dropped 2 per cent on Wednesday as US equity markets broadly fell, even though energy traders worried about shrinking Iranian supply from US sanctions and kept an eye on Hurricane Michael, which closed some US Gulf of Mexico oil output.

Brent crude futures fell US$1.91, or 2.3 per cent, to settle at US$83.09 a barrel. The global benchmark posted a 1.3 per cent gain on Tuesday.

US West Texas Intermediate (WTI) crude futures fell US$1.79 to settle at US$73.17 a barrel, a 2.4 per cent loss.

Oil prices extended losses in post-settlement trade when industry group the American Petroleum Institute reported that crude inventories rose by 9.7 million barrels in the week to Oct 5 to 410.7 million, more than four times the 2.6 million barrel build analysts had expected.

The US Energy Information Administration is due to release official government inventory data on Thursday at 11am EDT.

Oil prices fell as US stock markets skidded on Wednesday, with the S&P500 stock index marking its biggest one-day fall since February. Rising US Treasury yields and trade policy worries sparked the sell-off on Wall Street.

"As long as we continue to see broad-based weakness in the equity sector, that's going to start spilling over into other areas as well. One in particular will be energy because it's all about economic expectations," said Brian LaRose, a technical analyst at United-ICAP.

Risks to the global financial system have risen over the past six months and could increase sharply if pressures in emerging markets escalate or global trade relations deteriorate further, the International Monetary Fund (IMF) said.

On Tuesday, the IMF cut its global economic growth forecasts for 2018 and 2019, raising concerns that demand for oil may also slump.

Prices fell despite worries about supply as Hurricane Michael made landfall in Florida. In the US Gulf of Mexico, producers have cut daily oil production by roughly 42 per cent due to the storm, the Bureau of Safety and Environmental Enforcement said. The cuts represent 718,877 barrels per day of oil production.

While crude output has been cut because of the hurricane, "down time is expected to be brief and Gulf of Mexico output now accounts for a comparatively small portion of total US production," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Worries about crude supply from the Middle East have given prices some support.

Iran's crude exports fell further in early October as buyers sought alternatives ahead of US sanctions that take effect on Nov 4, according to tanker data and an industry source.

Saudi Arabia, the world's biggest oil exporter, will supply Indian buyers with an additional 4 million barrels of crude oil in November, several sources familiar with the matter said. India is Iran's top oil client after China.

Several of the world's biggest trading houses expect US sanctions on Iran to keep oil prices high, with crude staying above US$65 and possibly breaking above US$100 in the medium term.

US crude oil output this year was expected to rise 1.39 million bpd to a record 10.74 million bpd, the US Energy Information Administration said in its monthly forecast on Wednesday.

REUTERS