Oil prices fell to three-week lows on Wednesday after a big build in U.S. crude inventories fed concerns that demand may not be enough to absorb one of the largest global surpluses in modern times.
The American Petroleum Institute on Tuesday reported a rise in U.S. commercial crude stocks of 7.1 million barrels to 473 million barrels in the week to Oct. 16, trumping expectations for an increase of 3.9 million barrels.
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Rising supply from the largest-producing countries, along with slowing demand from emerging nations, has cut the price of oil in half over the last year.
With no sign that either trend will change any time soon, the oil price is more likely to fall than rise, analysts said.
"The risk is on the downside," said PVM Oil Associates analyst Tamas Varga. "It's an oversupplied market."
That is also the view of many the world's top traders, who see limited upside for oil for at least the next year.
"There is a surplus everywhere," Torbjorn Tornqvist, chief executive of Gunvor, told the Reuters Commodities Summit.
Brent crude for December <LCOc1> fell 56 cents to $48.15 a barrel by 0945 ET. U.S. crude futures <CLc1> for December delivery dropped 78 cents to $45.51 a barrel.
Investors awaited official oil inventory figures from the U.S. Energy Information Administration, due at 10:30 a.m. ET to see if they confirmed the API data.
A Reuters poll of analysts forecast the EIA would report a build in crude stocks for a fourth straight week. [EIA/S]
"We've seen inventories build for the last three weeks now, which has helped ensure oil prices remain quite heavy," Oanda market analyst Craig Erlam said in a note.
PVM's Varga said crude markets could see some short-covering as a result of a sell-off that has brought Brent down from a high of above $54 a barrel two weeks ago.
Open interest in Brent futures has risen to 442,279 lots with the rollover of the front-month contract into December, just a few thousand contracts shy of April's record, which Varga said could provide the market with a boost in the event of a larger price slide.
Only five non-OPEC countries sent officials to a meeting of with OPEC in Vienna on Wednesday to discuss possible market cooperation. The meeting was unlikely to agree any coordination over supply, an OPEC delegate said.