Oil drops 4% on oversupply, equities sell-off

OPEC and other oil producers have agreed to curb production to drain tanks and boost prices

LONDON: Oil prices fell 4% on Tuesday, dropping for a third consecutive session as reports of swelling inventories and forecasts of record US and Russian output combined with a sharp sell-off in global stock markets.

US crude oil fell $2.04, or 4.1%, to a low of $47.84, its weakest since September 2017, before recovering to around $48.10 by 0920 GMT. North Sea Brent crude fell $2.41, or 4.0%, to a low of $57.20, a 14-month low, and last traded around $57.61, down $2.00.

Both crude oil benchmarks have shed more than 30% since early October due to swelling global inventories.



"A large part of the move (lower) is due to a broader market sell-off, with both US and Asian equity markets coming under pressure," said Dutch Bank Amsterdam Commodities Strategist Warren Patterson. "Specifically for the oil market, there are no clear signs yet of the market tightening," he added.

The Organization of the Petroleum Exporting Countries (OPEC) and other oil producers agreed this month to curb production by 1.2 million barrels per day (bpd), equivalent to more than 1% of global demand, in an attempt to drain tanks and boost prices.

But the cuts won't happen until next month and meanwhile production has been at or near record highs in the United States, Russia and Saudi Arabia, undermining spot prices.

Russian oil output has hit a record 11.42 million bpd this month, an industry source familiar with the data told Reuters.

OPEC waiting for Russia before deciding output cut

Oil production from seven major US shale basins is by the year-end expected to climb to more than eight million bpd for the first time, the US Energy Information Administration said on Monday.

Inventories at the US storage hub of Cushing, Oklahoma, delivery point for the oil futures contract, rose more than 1 million barrels from December 11-14, traders said, citing data from market intelligence firm Genscape.

The United States has surpassed Russia and Saudi Arabia as the world's biggest oil producer, with total crude output climbing to a record 11.7 million bpd. With prices falling, unprofitable shale producers will eventually stop operating and cut supply, but that could take some time, and meanwhile inventories keep growing.

"Rising US shale production levels along with a deceleration in global economic growth have threatened to offset OPEC+ efforts," said Singapore-based brokerage Phillip Futures' Benjamin Lu Jiaxuan. "Market confidence remains extremely delicate."