An abundance of supply combined with some end-of-the-quarter trading patterns caused U.S. oil prices to fall more than 3% on Tuesday.
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The oil glut has pushed the price of a gallon of gasoline to a four-year low.
The global Brent contract entered bear-market territory on Tuesday after OPEC oil supplies reportedly hit a two-year high, far surpassing demand.
But oil prices also dropped for technical reasons as traders bought and sold contracts to reconcile their books on the last trading day of the month and quarter and on the expiration of contracts for refined fuels.
The benchmark U.S. oil contract settled down $3.41 at $91.16 a barrel on the New York Mercantile Exchange, its worst drop since November 2012 and also recording its biggest quarterly decline since the second quarter of 2012.
The Brent crude contract was down $2.70, or $2.8%, at $94.49 a barrel on the ICE Futures Europe exchange. The drop put the Brent contract into bear-market territory, defined as a 20% drop from a recent peak. Prices are down 20.5% from the $118.90 peak reached on Feb. 8, 2013.
The Wall Street Journal reported that a production survey released by Reuters apparently pushed the market into a midmorning selloff. The survey said supplies from the Organization of the Petroleum Exporting Countries (OPEC) rose to their highest level in two years in September as a result of increased output from Saudi Arabia and Libya. With supply of nearly 31 million barrels, the output exceeded OPEC's demand forecast for its own crude of 29.2 million barrels, according to the newspaper.
Despite calls for OPEC to cut back on production, the oil producing nations that run the organization have failed to do so.
Analysts also pointed to the end of the month and quarter as a likely incentive for investment managers to be pulling back from positioning in the market.
Despite ongoing turmoil in the Middle East, the glut of supply has resulted in an unlikely decline in gasoline prices in the U.S.
The U.S. initiated air strikes in Iraq last month to target Al-Qaeda-inspired Islamic State militants. In recent weeks, the battle was extended to Syria, where American and allied fighter jets have conducted more air strikes.
But in an unusual contrast, prices at the pump are showing no signs of upward pressure. Travel group AAA said the average price for a gallon of regular gas currently sits at $3.34, nine cents below the month-ago average.
Last weekend’s gas prices are also at a four-year low for this time of year. Since June 28, the national average has dropped 34 cents a gallon.
Rapid growth in domestic oil production -- driven by unconventional shale plays -- has lessened the impact of potential supply disruptions overseas, according to AAA spokesman. In its monthly Short-Term Energy Outlook for September, the Energy Information Administration said the U.S. produced 8.6 million barrels per day in August, the highest monthly production since July 1986.
Meanwhile, the share of domestic petroleum consumption met by net imports dropped from 60% in 2005 to 32% in 2013. The EIA expects the net import share to fall to 21% in 2015. That would mark the lowest level since 1968.
Oil Supplies has also been kept high due to the quiet hurricane season. Major hurricanes can disrupt refinery operations, thereby driving gas prices higher.