U.S. crude oil futures fell more than 2 percent on Thursday to trade near their lowest price in six and a half years, as data showing a big rise in key U.S. stockpiles intensified worries over a growing global glut.
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A rise in the dollar, after higher U.S. retail sales in July and strengthening employment data, added to the weight on oil. U.S. crude prices fell as low as $42.07 a barrel, just four cents above the six-year trough touched in March.
Oil has fallen by nearly a third since late June, a decline that continued this week after BP PLC's 413,500-barrel per day (bpd) refinery in Whiting, Indiana, the biggest in the U.S. Midwest, was forced to shut down two-thirds of its capacity for over a month or more of repairs due to a leak, sapping demand for crude.
Losses deepened on Thursday morning after market intelligence firm Genscape reported that stockpiles at the Cushing, Oklahoma delivery point for U.S. crude futures has risen more than 1.3 million during the week to Aug. 11, adding to fears that the outage would cause stocks of surplus crude to swell. If confirmed, it would be the biggest build since March.
Global crude benchmark Brent traded down 57 cents, or 1.1 percent, at $49.09 a barrel by 1:15 p.m. EDT (1715 GMT).
U.S. crude fell $1.10, or 2.5 percent, to $42.20.
Brent's premium to U.S. crude <CL-LCO1=R> hit a three-week high of nearly $7.
Some analysts said a breach of the March low in U.S. crude could trigger a cascade of sell orders, driving prices sharply lower again.
"We are in the camp where prices will retest and fail to hold support at these levels," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. "We're likely get a capitulation trade in the $30 levels, a call we have been making since March."
The market failed to rally on Wednesday after the U.S. Energy Information Administration (EIA) reported a 1.7 million-barrel drop in crude stocks last week, as concerns over the Whiting outage offset the drawdown. Traders focused instead on a big build in distillates, which include diesel and heating oil.
The EIA reinforced fears about the growing global glut in oil by reminding the market on Thursday that Iran had "technical capability" to boost output by 600,000 bpd by end-2016 after the West lifts nuclear-related sanctions placed on Tehran exports.