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Oil fell the most in seven months, paring the biggest three-day rally in 25 years as speculation faded that the Organization of Petroleum Exporting Countries (Opec) might coordinate with other nations to curb supply.
Futures slipped as much as 8.1 per cent in New York after surging 27 per cent in the three days through Monday, the most since August 1990. Prices fell as Chinese manufacturing slowed and US crude stockpiles were forecast to have increased. Oil rose Monday after the US government lowered production estimates and Opec said it's prepared to speak with other producers about getting "fair and reasonable prices," according to its bulletin.
Crude will remain at $40 to $60 a barrel into 2016 as rising supplies outpace demand, according to Ian Taylor, chief executive officer of Vitol Group BV, the biggest independent oil trader. Iran plans to boost output by 1 million barrels a day within five months after sanctions against it are lifted, said Oil Minister Bijan Namdar Zanganeh.
"This market is primed for volatility," Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, which oversees $128 billion of assets, said by phone. "I see us moving lower because there continues to be an overabundance of oil and that's not going to change anytime soon. It's hard to see the market take off again."
Inventory forecast
Brent for October settlement decreased $4.08, or 7.5 per cent, to $50.07 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $4.52 premium to WTI.
A drop in a Chinese factory gauge to the lowest in three years prompted speculation that growth in the world's second- biggest oil-consuming economy is slowing. China's official Purchasing Managers' Index was 49.7 for August, down from 50 in July. Numbers below 50 indicate contraction.
EIA revision
US crude inventories probably rose by 700,000 barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Wednesday. A gain of that size would keep supplies more than 90 million barrels above the five-year seasonal average.
The EIA reduced its US crude production estimates by as much as 130,000 barrels a day for the first five months of the year based on a new survey. The nation pumped about 9.44 million barrels of crude a day during the period, down from a previous estimate of 9.53 million.
"The EIA numbers yesterday bamboozled the market and were the catalyst for the move higher," Stephen Schork, president of the Schork Group Inc in Villanova, Pennsylvania, said by phone.
"We're expecting a pullback in US production going forward, but not from Opec."
Opec won't shoulder the burden of propping up prices by cutting supply on its own, and non-member nations would have to contribute, according to the bulletin from its Vienna-based secretariat. The group said it will protect its own interests and that there is "no quick fix" for market instability.
Market share
The 12-member group may shift policy and reduce output to keep Brent crude above $50 a barrel if demand in emerging economies falters, Bank of America Corp said August 28. Saudi Arabia, Opec's biggest member and architect of the current strategy to defend market share, "cannot sustain its spending sub-$40 a barrel for very long," the bank said.
The oil-production surplus means stockpiles will keep expanding for "the next few quarters" and excess inventories won't clear until 2017 at the earliest, Vitol's Taylor said Tuesday in an interview.
The Chicago Board Options Exchange Crude Oil Volatility Index climbed to the highest level since March 17 on Tuesday. The gauge tracks hedging costs on the US Oil Fund, the biggest exchange-traded fund tracking WTI.
