Crude futures slumped again in early Asian trade on Wednesday, with U.S. oil falling to its lowest since September 2003 below $28 a barrel on worries over a global supply glut.
That came as the International Energy Agency, which advises industrialised countries on energy policy, warned on Tuesday that oil markets could “drown in oversupply”.
U.S. crude futures were trading down 46 cents at $28.00 a barrel at 0136 GMT, after dropping to $27.92 earlier in the session – a new low since September 2003.
The contract settled down 96 cents, or 3.26 percent, the session before.
Brent futures dropped 19 cents to $28.57 a barrel after settling up 21 cents, or 0.7 per cent, in the previous session. They were hovering close to a 12-year low.
“Oil prices are at a level where OPEC countries are all struggling. They are selling oil for cashflow not for profit,” said Jonathan Barratt, chief investment financial officer at Sydney’s Ayers Alliance.
“U.S. producers are holding out, but I think they’re bleeding as well,” he said.
“Looking at current prices, oil producers will engineer something to push prices higher.”
U.S. commercial crude oil and gasoline stocks were forecast to have risen by 3 million to 485.6 million barrels last week, a preliminary Reuters survey taken ahead of weekly inventory data, showed on Tuesday.
Stocks data from industry group the American Petroleum Institute (API) is due out later on Wednesday, while official figures from the U.S. Department of Energy’s Energy Information Administration (EIA) will be released on Thursday, a day later due to a public holiday.
Ample storage space for crude around the world, including 230 million barrels of new storage to be completed this year, will help prevent further sharp price falls but will weigh against significant price rises, according to analysts and industry watchers.
Global financial markets seem to be overreacting to falling oil prices and the risk of a sharp downturn in China’s economy, Maurice Obstfeld, the International Monetary Fund’s chief economist said on Tuesday.
“The oil price puts stresses on oil exporters … but there is a silver lining for consumers worldwide, so it’s not an unmitigated negative.”