REUTERS
Oil futures inched closer to the psychologically important level of $25 per barrel on Wednesday, with U.S. crude touching its lowest since 2003, as a global supply glut bumped up against bearish financial news that sparked deeper worries over demand, according to CNBC.
U.S. benchmark West Texas Intermediate (WTI) prices dropped more than 5% to trade down $1.54 at $26.92 by 10:56 a.m. EDT (1556 GMT). The contract settled down 96 cents, or 3.26%, in the previous session, CNBC wrote.
John Kilduff, founding partner at Again Capital, said the pressure on U.S. crude prices was largely due to the expiration of the February contract at the end of Wednesday's session.
With storage space getting incredibly scarce — including at the Cushing, Oklahoma delivery point for WTI — bidders are unlikely to take on February contracts for actual physical delivery without a substantial discount.
"This condition at the hub could wreak havoc until the close of trading of this contract," he said.
Brent futures fell by $1.18 to $27.58 a barrel, after trading breaking through the 12-year trough of $27.67 hit on Monday. The contract settled up 21 cents, or 0.7%, in the previous session.
World equities sank to their lowest level since July 2013, and the index's fall so far in January is already 9.9%, the biggest drop since 2009.
"You need the low price to slow down shale much faster," said Bjarne Schieldrop, chief commodities analyst with SEB in Oslo. He added that a "very broad-based sell-off across assets and across the world" would amplify pressure on oil prices. "With oil being fundamentally weak, it should be moving down even further."
While the International Monetary Fund's chief economist warned that global financial markets seemed to be over reacting to falling oil prices and the risk of a sharp downturn in China's economy, demand concerns compounded an already bearish energy market.
The International Energy Agency, which advises industrialized countries on energy policy, warned on Tuesday that the world could "drown in oversupply" of oil in 2016, with Iran's exports piling into the excess.
"It's a continuous story that pushes prices lower and lower," said Hans van Cleef, senior energy economist with ABN AMRO. "We should see an effect on production."
Russia's largest private oil producer on Wednesday said it expects the country's output to drop for the first time in many years in 2016.
"Today, the oil industry is near a survival line ... Unfortunately we are cutting drilling," Lukoil's chief executive Vagit Alekperov said.
A report said Canada's oil-sands producers were now losing money on every barrel, while U.S. shale producers "were just burning cash" at current prices.
U.S. commercial crude oil stocks were forecast to have risen by 3 million barrels last week, a Reuters survey taken ahead of weekly inventory data showed on Tuesday. A report on stocks from the American Petroleum Institute, a U.S. industry group, is due later on Wednesday.
Official data from the U.S. government's Energy Information Administration will be out on Thursday, a day late due to a public holiday.
Citigroup cut its Brent crude oil price forecast for 2016 to $40 per barrel, a note from the bank showed on Wednesday.
"Due to fresh Chinese macro concerns and an as yet 'missing' reaction from non-OPEC production volumes, Citi is lowering its 2016 Brent forecast to $40 per barrel to reflect new market realities," the note to clients said.