By Barani Krishnan
NEW YORK (Reuters) - Crude prices hit 2-1/2 month lows on Thursday after the U.S. government reported a stockpile build four times above market expectations and OPEC said its current output could result in a daily surplus of more than 500,000 barrels by next year.
Crude futures fell about 3 percent after the U.S. Energy Information Administration said stockpiles rose by 4.2 million barrels last week, citing higher imports. Distillate inventories also climbed unexpectedly as refiners hiked output. [EIA/S]
The crude stock build overshot the 1 million barrels forecast by analysts in a Reuters poll but was below the 6.3 million suggested by industry group American Petroleum Institute (API). [API/S]
"It's another data point highlighting the oil glut in the U.S., or the global markets for that matter," said analyst Chris Jarvis of Caprock Risk Management in Frederick, Maryland.
Brent futures were down $1.48, or 3.2 percent, at $44.33 a barrel by 12:42 p.m. EST (1732 GMT). The session low was $44.30, the lowest since Aug. 27.
U.S. crude futures fell $1.20, or 2.8 percent, to$41.73.
The Organization of the Petroleum Exporting Countries said in a monthly report that its output fell in October and that rival producers outside the group were likely to produce less oil next year due to low prices and investment cuts on exploration.
But OPEC also said its output could result in a 560,000-barrel-per-day surplus by 2016 if it keeps pumping at October's rate of 31.38 million bpd."(OPEC is) trying to put a positive spin on it by saying the decline in prices will encourage some demand, but they're also saying the reason for the drop in the first place is because supply is still outstripping demand," said CMC Markets analyst Jasper Lawler.
Reuters shipping data showed tankers with nearly 20 million barrels of Iraqi oil due to sail to the United States in November, almost 40 percent above the amount booked to arrive in October. That would be the largest U.S. monthly import of Iraqi oil since mid-2012.
Iraq is OPEC's No. 2 crude producer.
In another sign of oversupply, a traffic jam of about 40 oil tankers has emerged along the Texas coast.
The storage spike has sharply widened prompt crude's discount to oil slated for later delivery as traders hold more in hopes of selling at higher prices later. On Thursday, prompt U.S. crude's discount to the second-month was at its largest since the end of April.
(Additional reporting by Amanda Cooper and Simon Falush in London and Henning Gloystein in Singapore; Editing by Susan Thomas, Marguerita Choy and Lisa Von Ahn)
