Oil prices crashed to new one-year lows on Tuesday, dragged down by a deepening sense of global economic gloom as well as fears of oversupply in the oil market itself.
Oil futures tumbled on Tuesday, with a more than 7% loss, sending the benchmark U.S. crude oil prices to their lowest finish in nearly 16 months, as concerns over a potential global supply glut rattled the market.
The reasons for the sudden meltdown were multiple. Rising crude oil inventories and expected increases in shale production weighed on oil prices, but the price crash was highlighted by the broader selloff in financials.
Crude Oil dropped $3.64, or 7.3%, to settle at $46.24 a barrel on the New York Mercantile Exchange. The settlement marked the lowest finish for a front-month contract since August 30, 2017, according to Dow Jones Market Data. The January futures contract expires at Wednesday’s settlement.
U.S. oil prices rose on Wednesday to claw back part of their more than 5 percent losses from the previous session, with worries about oversupply and a slowing global economy keeping markets under pressure.
It had climbed 28 cents, or 0.60 percent, to $46.90 per barrel, after plunging 7.3 percent the day before in a session when it touched its lowest since August last year at $45.79.
Global benchmark Brent was up 0.85 percent, or 49 cents, at $56.75 per barrel. It dropped 5.62 percent on Tuesday, at one point marking a 14-month low of $56.16 a barrel.
U.S. crude stocks rose unexpectedly last week, while gasoline inventories increased, industry group the American Petroleum Institute said on Tuesday.
If the build in crude stockpiles is confirmed by U.S. government data Wednesday, it will be the first increase in three weeks.
The output from de facto OPEC leader Saudi Arabia as well as the United States and Russia — leading producers outside the group — has been at or near record highs.
The U.S. government has said shale production is expected to climb to over 8 million barrels per day (bpd) for the first time on record by the end of December.
Russian oil output hit a record 11.42 million bpd this month, an industry source told Reuters.
However, there were some factors tightening supply, with Libya’s state oil company declaring force majeure at the country’s largest oilfield.
That came a week after the firm announced a contractual waiver on exports from the field following its seizure by protesters.
Elsewhere, a speech marking 40 years of market liberalization by Chinese President Xi Jinping offered no specific support measures for the second largest economy, disappointing investors who were expecting fiscal policy loosening and a tax cut.
China’s Shanghai crude futures fell 5.95 percent in tandem with Brent’s decline overnight to trade at 388.9 yuan ($56.41) per barrel on Wednesday, the lowest level since their launch in March.
Oil market investors were also turning their attention to the outcome of a two-day meeting of the U.S. Federal Reserve that is due to end on Wednesday.