Oil drops below $56 after U.S. stockpiles hit record

A worker prepares to fill a car at a gas station close to Copacabana beach in Rio de Janeiro

Brent extended losses to drop below $56 a barrel on Wednesday, turning around a four session rally after U.S. crude supplies gets a record high, changing the global glut back in to focus.

Oil’s almost 20 percent flow since Friday had raised gossip crude’s 7-month overthrow may be at an end, but the sharp sell-off on Wednesday signified prices may not yet have found a base, with the market still fine supplied.

The U.S. Energy Information Administration (EIA) said U.S. crude stocks increased by 6.3 million barrels last week to 413.06 million barrels, and the highest level from the time when records began in 1982.

Crude stocks at Cushing, Oklahoma, delivery point of the U.S. crude oil agreement increased by 2.5 million barrels, while distillate and gasoline stocks also jumped.

Brent was $2.10 lower at $55.81 a barrel by 16:00 GMT, having traded as high as $59 a barrel on Tuesday – well over lows for the year about to $45 a barrel knock two weeks ago.

U.S. crude futures were down $2.81 at $50.24 a barrel.

“Just having a look at the general outlook, there is no deficiency of oil anywhere,” said Sal Umek at the Energy Management Institute in New York.

“It is bearish directly across the board.”

Since prices dropped by 60% between June and January, traders have fought with whether the surprising price fall would be enough to slow fast-growing U.S. shale output or whether oil still had further to collapse.

While a quick drop in the number of U.S. oil rigs and a signal of budget slices by major energy companies improved speculation production would collapse faster than expected, analysts expect the market will still be oversupplied for the first half of the year.

Too fast a price upturn may also keep expensive shale projects in succession, traders said.

“Prices are seeking a level to become constant around for a few weeks or months,” said Richard Mallinson, an analyst at Energy Aspects in London.

“It is appearing like it could be in the fifties.”

Additional issues are also manipulating the position, with the dollar steadying after its worst day in more than a year. The U.S. unit climbed against a basket of currencies by 0.2 percent, making dollar-traded commodities more high-priced.

The outlook for oil demand has also been muddied by indications the Chinese economy is slowing. On Wednesday data showed China’s services sector developed at the slowest pace in six months in January.

Brent extended losses to drop below $56 a barrel on Wednesday, turning around a four session rally after U.S. crude supplies gets a record high, changing the global glut back in to focus. Oil's almost 20 percent flow since Friday had raised gossip crude's 7-month overthrow may be at an end, but the sharp sell-off on Wednesday signified prices may not yet have found a base, with the market still fine supplied. The U.S. Energy Information Administration (EIA) said U.S. crude stocks ...
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