Oil tumbled 5 percent to near six-year lows before recovering ground on Tuesday, and Brent briefly traded at par to U.S. crude for the first time in three months as some traders moved to take advantage of ample storage space in the United States.
Continue Reading Below
Traders were searching to store the glut of oil, which has knocked prices down 60 percent in the last six months. So far this week, Brent has lost 7 percent and U.S. crude 5 percent.
Brent settled down 84 cents at $46.59 a barrel, after falling to $45.19, its lowest since March 2009.
U.S. crude closed down 18 cents at $45.89, after hitting an April 2009 low of $44.20.
Oil tumbled earlier after big OPEC producer United Arab Emirates defended the group's decision not to cut output to boost prices.
Losses were pared by a flurry of short-covering toward the close, as players moved to cash in on profitable short positions, traders said.
The arbitrage between Brent and U.S. crude
Traders said the benchmarks converged as limited storage on land for Brent forced traders to look for storage in the Cushing, Oklahoma, delivery point for U.S. crude.
U.S. onshore storage tanks for crude are barely a third full, showing the highest vacancy rate since the government's Energy Information Administration began its bi-annual survey of tank farm capacity in 2010.
Some said the convergence was not sustainable because the narrowed arbitrage attracted foreign imports.
In the case of Brent, some the world's biggest traders booked supertankers to store at least 25 million barrels at sea in recent days in hopes of profiting later if prices recover.(http://link.reuters.com/rux73w)
At least 11 very large crude carriers (VLCCs) have been reported booked with storage options, shipping sources and fixture lists show, rising from about five vessels at the end of last week. Each VLCC can hold a maximum of 2 million barrels of oil.
Price differentials for U.K. North Sea Forties crude weakened on Tuesday, pressured by an abundant supply in the Atlantic basin.
The U.S. government said domestic oil production will rise by 200,000 barrels per day in 2016, the slowest rate of growth since 2011, reflecting the impact of plunging prices on drilling.
Traders continued to wonder when the price rout would end.
"Despite the magnitude of the selloff, there are no indications anyone knows what the bottom is," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.
The industry group American Petroleum Institute (API) late on Tuesday reported that U.S. crude stocks had risen 3.9 million barrels last week.
Gasoline and distillate stockpiles also rose, the API said.
The Energy Information Administration's oil inventory report is due on Wednesday at 1530 GMT.
(By Barani Krishnan and Samantha Sunne; Additional reporting by Robert Gibbons and Catherine Ngai in New York; Jonathan Saul and Claire Milhench in London; and Henning Gloystein in Singapore; Editing by Dale Hudson, John Stonestreet, Chris Reese, Marguerita Choy and Andrew Hay)