Oil slid more than 5 per cent on Wednesday following data showing a surge in US crude inventories to another record high, breaking the narrow range it has been trading in since late 2016.
The US energy department reported a ninth consecutive rise in crude stockpiles, which last week jumped by 8.2m barrels, triggering a sell-off in both major benchmarks that plunged to the lowest level since December.
US marker West Texas Intermediate dropped by $2.94 a barrel to $50.20 while the global Brent benchmark fell $2.92 to $53.
There are concerns that excess inventories could persist despite some of the world’s biggest producers — both inside and outside the Opec cartel — curbing output as part of a global deal to cut supply.
Patrick Pouyanné, chief executive of Total, said at the CERAWeek industry conference in Houston the market contained bullish elements, such as Opec’s cutbacks, and bearish elements such as the fact that “the size of inventories continues to build up.”
But the size of the sell-off still came as a shock to traders after more than two months of oil holding in one of the tightest ranges of the past decade. The market has been characterised as a tug of war between the Opec-led cuts and a rebound in US shale.
Saudi Arabia’s oil minister Khalid Al Falih said on Tuesday that not only were crude inventories taking longer than anticipated to ease, the supply cut deal was only spurring a resurgence in US output.
The price drop has sparked fears among investors who were betting on higher prices. Hedge funds had amassed the largest ever bet on rising prices in the early months of 2017. The extent of the drop may force some to liquidate their positions, potentially leaving the market vulnerable to a correction and putting further pressure on prices.
Opec and other countries outside of the cartel will decide in May whether to extend the supply cut deal, that was initially agreed for the first six months of 2017.
Expectations of a US interest rate hike next week, also hit oil prices, as the dollar rose. This makes it more expensive for holders of other currencies to buy commodities such as oil, which is priced in dollars.