Oil extended its decline from the lowest close in more than 12 years before weekly U.S. government data forecast to show crude stockpiles expanded, exacerbating a global glut.
Futures lost as much as 3.2 percent in New York after falling 3.3 percent Tuesday to the lowest since September 2003. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday. Markets could “drown in oversupply,” sending prices even lower as demand growth slows and Iran boosts exports, according to the International Energy Agency.
“The outlook for the oil market is pretty negative at the moment,” Angus Nicholson, an analyst at IG Ltd. in Melbourne, said by phone. “Iran is adding to the concerns. Once the market does get a gauge on Iran’s potential, there will probably be less uncertainty affecting the market.”
Crude is down 25 percent this year amid volatility in Chinese markets and speculation the removal of restrictions that capped Iran’s oil sales will help to prolong a worldwide oversupply. Bank of America Corp. said Tuesday it set aside $500 million to cover potential losses as its energy borrowers struggle to stay afloat with crude below $30 a barrel.
West Texas Intermediate for February delivery, which expires Wednesday, fell as much as 91 cents to $27.55 a barrel on the New York Mercantile Exchange and was at $27.65 at 1:30 p.m. Hong Kong time. Monday’s transactions were booked with Tuesday’s because of the Martin Luther King Jr. holiday. The more-active March future slid 78 cents to $28.79.
Brent for March settlement lost as much as 63 cents, or 2.2 percent, to $28.13 a barrel on the London-based ICE Futures Europe exchange. The contract rose 21 cents to $28.76 Tuesday. The European benchmark crude traded at a discount of 56 cents to WTI for March.
U.S. crude stockpiles were about 100 million barrels above the five-year seasonal average at the end of 2015, according to EIA data. Supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, increased for a 10th week through Jan. 8 to a record 64 million barrels.
The IEA trimmed 2016 estimates for global oil demand as China’s economic expansion weakens and raised forecasts for supplies outside of the Organization of Petroleum Exporting Countries. While non-OPEC supply is set to drop 600,000 barrels a day in 2016, Iran’s comeback could fill that gap by the middle of the year. As a result, world markets may be left with a surplus of 1.5 million barrels a day in the first half.
Oil prices are likely to stay at current levels of about $30 a barrel for some time as the energy market weathers a “supply shock,” Glencore Plc Chairman Tony Hayward said in interview at the World Economic Forum in Davos, Switzerland.