Crude futures fell on Tuesday, dropping below $30 a barrel and extending the previous day's losses by more than 2 percent, as fresh worries about oversupply from top producers Saudi Arabia and Iraq spooked the market.
Global benchmark Brent crude lost 72 cents, or 2.4 percent, to $29.78 a barrel by 0524 GMT after hitting a session low at $29.76 a barrel. It settled down $1.68 at $30.50 in the previous session, 5.2 percent below its closing price on Friday.
U.S. crude fell 78 cents, or 2.6 percent, to $29.56 a barrel, after hitting a session low at $29.50. It fell $1.85, or 5.8 percent, to $30.34 a day earlier.
"Technical short-covering and a cold spell in the United States and some parts of the northern hemisphere had helped prices rally temporarily, most of which was wiped out if you look at yesterday's prices," said Kang Yoo-jin, a commodities analyst at NH Investment and Securities based in Seoul.
"Psychological factors have driven the severe volatility in the market," added Kang, who said the situation was likely to persist until concerns over oversupply were lifted.
Iraq's oil production hit a record in December, as output increased from the central and southern fields, an oil ministry spokesman said on Monday.
Meanwhile, Iraq may raise output further this year, reaching levels as high as 4 million barrels per day (bpd) from the country's south, a senior Iraqi oil official said. Current production has been around 3.7-3.8 million bpd.
At the same time, national oil giant Saudi Aramco is continuing to invest in oil and gas production capacity despite cost-cutting due to low prices, its chairman said on Monday.
Senior OPEC and Russian oil industry officials stepped up vague talk on Monday of possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signalled its resolve to allow the market to balance itself.
Investors are closely watching the Federal Reserve meetings starting on Tuesday for the first time since raising interest rates in December. While no move is expected, investors will scrutinise the statement to see how recent events have influenced the central bank's outlook.
"The weakening of the global economy is weighing down not only on the U.S. Federal Reserve, but also the ECB who are planning to act in March. This also means that the USD may not maintain strong after the meeting which may give some support for oil prices," Daniel Ang at Phillip Futures said.
In the United States, commercial crude and gasoline inventories probably rose last week, while distillate stocks likely fell, a preliminary Reuters survey showed.
(Reuters)
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