Oil prices plunged 5 percent to their lowest levels this year on Wednesday as U.S. crude inventories surged much more than expected to a record high, stoking concerns a global glut could persist even as OPEC tries to prop up prices with output curbs.
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Crude stockpiles in the world's top energy consumer have been rising all year, and soared last week by 8.2 million barrels, more than quadruple the forecasts, data from the U.S. Energy Information Administration showed.
The big daily price slide could signal a steep downward move if speculators are beginning to unwind long positions in crude oil, which were close to a record, traders and analysts said.
Technical analysts said more selling could be triggered if prices break below support levels after being in a tight trading range this year.
"We're seeing some 'GMO trading', or 'Get-Me-Out' type trading," said Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut.
"It's a combination of an overhang of (speculative) length and the overhang in inventories ... and the other thing unnerving the market is rapid growth in U.S. crude production."
U.S. West Texas Intermediate crude settled at $50.28 per barrel, down $2.86, or 5.38 percent after falling to its lowest level since Dec. 15.
Brent crude slumped to its lowest level since Dec. 8 at $52.93, before settling at $53.11, down $2.81 or 5.03 percent.
Prices notched their biggest daily percentage drop since February 2016. Trading volumes soared, with more than 877,000 lots of 1,00 barrels each changing hands in WTI, the highest since Dec. 1. In Brent, volumes hit the highest since early December with over 419,000 lots traded.
Both contracts fell below their 100-day moving averages for the first time since late November when OPEC and other producing countries announced supply cuts.
"This is one of those occasions where the news follows the trend and we've now tried for the better part of the year to get through the $55-$56 area for WTI specifically and we've failed," said Brian LaRose, technical analyst at ICAP in Jersey City, New Jersey.
"This is more of a catalyst and a wake-up call to a lot of people to say here's some fundamentals to back up what technicals have been saying for the last three weeks."
The most active options of the day included WTI April $50 puts with more than 21,000 lots traded, April $51 puts with more than 18,00 lots and May $50 puts with more than 17,000 lots.
Key support levels for WTI that were being tested are the $51-$50 range heading to the end of the week, LaRose said. If that is breached, the next levels to watch would be the $47-$48 range.
Also pressuring oil prices were expectations of a U.S. interest rate hike next week, which lifted the dollar against a basket of currencies, making greenback-denominated oil more expensive for holders of other currencies.
Oil prices had been supported by a supply cut that started on Jan. 1 by the Organization of the Petroleum Exporting Countries plus Russia and other non-members. Data and statements from oil ministers suggested high compliance with the deal.
Officially, OPEC maintains that it is too early to talk of extending the agreement, a position reiterated by the Saudi minister on Tuesday.
(By Devika Krishna Kumar; Additional reporting by Alex Lawler in London, Scott DiSavino and Catherine Ngai in New York, Ethan Lou in Calgary and Keith Wallis in Singapore; Editing by David Gregorio)