LONDON: Oil dropped to a 17-month low close to $98 a barrel on Wednesday as rising supplies and weak demand helped extend losses into a fifth session, while OPEC lowered the projected demand for its crude and U.S. product stocks jumped.
International benchmark Brent crude has fallen by 15 percent since hitting a year high above $115 a barrel in June, with fast-rising U.S. output and the return of exports from Libya creating a market that looks increasingly over-supplied.
While the U.S. Energy Information Administration (EIA) reported a near 1 million barrel drop in U.S. crude stocks last week it was a slightly smaller fall than the market expected with refiners upping production before the start of post-summer maintenance. Price declines increased after the report.
Inventories at Cushing, Oklahoma, the closely-watched delivery point of the U.S crude oil contract, rose by 77,000 barrels while gasoline and distillate stocks - which include diesel and heating oil - jumped by 2.4 million and 4.1 million barrels respectively.
"The report is very bearish given the large increases in refined product inventories, and even though the crude drawdown was close to expectations, it seemed to disappoint," said John Kilduff, partner at Again Capital LLC in New York.
Brent crude for October delivery hit a low of $98.02 a barrel, the lowest intraday price since April 18, 2013. It was trading down $1.02 at $98.11 a barrel at 1457 GMT.
U.S. crude was down $1.20 at $91.55 a barrel having hit the lowest since January at $91.46. Its discount to Brent narrowed in early trading to just over $6 a barrel, the lowest since mid-August, before widening again.
Oil prices on both sides of the Atlantic have dropped over the past three months, dragged down by soaring U.S. shale oil production which has replaced many imports from West Africa, Europe and other regions, leading to a supply glut in the Atlantic Basin and Asia.
Total production from members of the Organization of the Petroleum Exporting Countries (OPEC) rose last month despite Saudi Arabia, the group's largest member, saying it had cut output, according to the group's monthly market report.
The OPEC report also cut the forecast for the expected demand for crude from the group by 160,000 barrels per day (bpd) in both 2014 and 2015 due to stronger supply from countries outside the organisation.
"The oil (price) horizon does not look rosy for oil producers," said PVM Oil Associates Managing Director David Hufton.
U.S. OUTPUT
The U.S. EIA said on Tuesday that U.S. output in August hit its highest level since 1986.
The United States is the world's largest oil consumer and as recently as 2010 was reliant on imports for almost 50 percent of its consumption. That is expected to fall to just over 20 percent next year, the EIA said.
Libya's oil output has also recovered to more than 800,000 bpd despite political instability in the country, the National Oil Corp said on Wednesday. The country's Prime Minister Abdallah Al-Thinni told Reuters it could hit 1 million bpd next month.
Traders are increasingly moving oil into storage in a bid to sell it forward for later delivery at a higher price, with spot prices falling to an increasing discount due to increasing supplies, a market structure known as contango.
Chinese trader Unipec has booked the world's largest ship, a 3.2 million barrel capacity supertanker, to store Russian oil until prices recover, trading sources said this week, with analysts estimating about 50 million barrels of oil have already moved into floating storage.
As prices have fallen due to higher production, some traders have said that risks to supply from the Ukraine crisis and the difficult security situation in Iraq still remain.
The United States was putting the finishing touches on possible new sanctions on Russia's defence, energy and financial sectors over its intervention in Ukraine, the U.S. State Department said on Tuesday.
US Secretary of State John Kerry told reporters in Baghdad that President Barack Obama's speech Wednesday night will lay out a clear battle plan for tackling militant group Islamic State, which has captured vast areas of Iraq and Syria.
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