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Oil slumps as US crude reserves surge to record high

LONDON: Oil tumbled close to a six-year low Wednesday as US crude stocks soared to a record peak, sparking fresh fears over the growing global supply glut, analysts said.

New York’s West Texas Intermediate (WTI) for March delivery tumbled to $44.54 per barrel, which was not far from the March 2009 low of $44.20 hit two weeks ago.

The contract later stood at $44.96, down $1.27 from Tuesday’s closing level.

Elsewhere, European benchmark Brent North Sea crude for March sank 64 cents to $48.96 a barrel in late afternoon London deals.

The Department of Energy (DoE) revealed Wednesday that crude supplies surged 8.9 million barrels to 406.7 million in the week to January 23.

That was the highest total since the US government began keeping weekly records in 1982.

In addition, the weekly jump was more than double market expectations for a gain of 4.2 million barrels.

“If proof were needed that oil prices remain constrained by too much supply, this afternoon’s US inventory data confirmed it,” said CMC Markets analyst Michael Hewson.

“As such prices could well have further to fall with prospects of a drop below $40 a barrel becoming a reality in the short to medium term.”

The DoE added that distillates inventories, which include diesel and heating fuel, slid 3.9 million barrels, while gasoline or petrol stocks dipped 2.6 million barrels.

The weekly inventories report is a crucial focus for the oil traders because the United States is the world’s biggest consumer of crude.

The oil market has collapsed by more than 50 percent since June, plagued by plentiful crude supplies, the strong dollar and demand worries in the faltering world economy.

“WTI has come under renewed selling pressure on concerns that the supply glut is here to stay for at least another good few months,” added analyst Fawad Razaqzada at trading site Forex.com.

Traders were meanwhile awaiting the outcome of the US Federal Reserve’s latest monetary policy meeting.

The Fed is expected to release a post-meeting statement after the first gathering this year of its policy-making Federal Open Market Committee.

Singapore’s United Overseas Bank (UOB) said investors would pore over the statement for clues to the central bank’s thinking on the timing for an expected interest rate hike later this year, the first since 2006.

“We continue to expect the Fed rate normalisation to take place in 2Q-2015,” UOB said in a commentary.

“We do see the possibility that the Fed (could be) increasingly torn between strong jobs data with a potentially steep decline in headline inflation on the back of a plunge in oil prices,” the Singapore lender said.

The Fed has kept its key federal funds rate pegged between zero and 0.25 percent since late 2008 to support the US economy’s recovery from the deep 2008-09 recession.

In October, the Fed ended its massive asset-purchase programme, or quantitative easing, and has signalled that a rate hike would be coming this year. Most analysts expect the increase will arrive by June.

Interest rate adjustments are closely watched by crude investors as an increase usually leads to a pick-up in the dollar.

A stronger greenback makes dollar-priced oil more expensive for buyers using weaker currencies, denting demand. -AFP

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