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Oil plunged below $40 a barrel in New York for the first time in more than six years on signs the supply glut will be prolonged.
Prices have tumbled almost 35 per cent since this year's peak in June as producers maintain output even after an oversupply pushed prices into a bear market. Western Texas Intermediate (WTI) could drop to $32 on the persisting global surplus, Citigroup Inc said in a report on August 19. Concerns that China's economic growth will reduce demand also weighed on futures.
"It's clear that the major producers, the Saudis, Russians, the US and others, are battling for market share," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone.
WTI for October delivery dropped $1.20, or 2.9 per cent, to $39.94 a barrel at 1:03 pm on the New York Mercantile Exchange.
The US Energy Information Administration said crude oil supplies rose 2.62 million barrels last week. The unexpected US inventory gain followed signs that the Organization of the Petroleum Exporting Countries (Opec) members are planning to boost production. A Chinese manufacturing gauge sank to the lowest level since the financial crisis, increasing concern that demand will wane in the world's second-largest oil consumer.
Brent for October settlement fell 3 per cent to $45.21 a barrel on the London-based ICE Futures Europe exchange.
Oil balances point to further oversupply throughout 2015, "begging the question how low can oil go?" Citigroup analysts led by Seth Kleinman said in the note.
"Eventually, supply and demand will come into balance, but it will take a while," Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone.
US crude inventories rose to 456.2 million barrels in the week ended August 14, almost 100 million above the five-year average. The nation's output climbed 8.8 per cent from a year earlier to 9.52 million barrels a day in July, highest for the month since at least 1920, the industry-funded American Petroleum Institute said Thursday.
Opec has pumped above its 30 million-barrel-a-day quota for more than a year, according to data compiled by Bloomberg.
Saudi Arabia told OPEC its June production was a record, exceeding a previous all-time high set in 1980.
Angola plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading programme obtained by Bloomberg.
