Oil prices dropped below $40 a barrel, after news of growing U.S. stockpiles canceled out any optimism that an OPEC meeting this week could resolve a record oversupply.
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Prices sank steadily in the late morning and afternoon after the U.S. Energy Information Administration reported that crude-oil inventories rose for the 10th-straight week, when many people had expected them to shrink. Gasoline and distillate stocks rose, too, taking combined U.S. inventories to a new high of 2.004 billion barrels, according to Citigroup Inc.
The news helped dash a brief burst of optimism connected to the Organization of the Petroleum Exporting Countries' meeting later this week. Prices briefly spiked to gains ahead of the inventory report after the state-run news service in Iran reported that the country's envoy to OPEC said most group members want to cut production to support prices.
Light, sweet crude for January delivery dipped to as low as $39.98 a barrel just after 2 p.m. EST. It recently traded down $1.67, or 4.1%, to $40.18 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.60, or 3.6%, to $42.84 a barrel on ICE Futures Europe.
Wednesday's inventory data and price movement highlight how little has changed in the market from 2014. Both crude-oil benchmarks are around 40% lower in price from same time last year and have stayed below $50 for months. Despite the low prices, exporters continue to pump and sell more crude to fight for customers. The competition between those traditional exporters and growing producers in other parts of the world shows no sign of slowing.
U.S. stockpiles increased by 1.2 million barrels, largely from a surge in imports, especially from Iraq and Venezuela, according to Citigroup Inc. Imports rose 414,000 barrels a day and refineries usage rates increased 2.5 percentage points to 94.5%. Stocks at Cushing, Okla., the delivery point for U.S. also grew by 428,000 barrels.
The inventory report was "pretty bearish across the board" and paved the way for prices to retest the key $40 a barrel mark they have hit now nine times this year, said Tariq Zahir, who oversees $6 million as managing member of Tyche Capital Advisors LLC. "If you have favorable weather, that means people are driving, so demand will be up, you've got imports, and a perfect scenario for refiners to pump out as much as they can," said Mark Waggoner, president of brokerage Excel Futures.
Gasoline futures recently traded down 4.9% to $1.2965 a gallon. Diesel futures fell 4.2% to $1.3119 a gallon.
OPEC meets on Friday in what is expected to be the most contentious meeting in years. Saudi Arabia is under pressure from other group members to take action to prop up crude prices, but many analysts say it wouldn't make sense for the country to change course now and concede in its battle against new competitors around the globe.
The quick return to price declines after Wednesday's brief price spike shows traders believe that analysis is true, despite the headlines and claims coming from Iran, said Scott Shelton, broker at ICAP PLC.
Iran is "trying to talk up the market any way they can to get oil at a higher price," Mr. Zahir said. "But (Saudi Arabia) isn't cutting back at all. They want to protect their market share.…They're going to pump as much as they can."
Georgi Kantchev contributed to this article.
By Timothy Puko