Oil slides, Brent slated for biggest annual fall since 2008

NEW YORK — Oil prices fell on Wednesday as concerns about demand for fuel kept worries about a global supply glut intact.

Both Brent and US crude significantly pared losses just before government data showed US crude oil inventories fell 1.8 million barrels last week, a bigger drop than analyst expectations for a 100,000-barrel dip in stocks.

After initially paring more losses, crude futures pushed lower.

US gasoline stocks rose 3 million barrels and distillate stocks were up 1.9 million barrels last week, data from the Energy Information Administration (EIA) showed, as refiners lifted capacity utilisation 0.9 percentage point to 94.4 per cent.

The EIA data followed American Petroleum Institute data released on Tuesday that showed an increase in US stockpiles.

Brent February crude was down $1.25 at $56.65 a barrel at 1609 GMT, after dropping as low as $55.81, its weakest since May 2009. US crude was down $1.02 at $52.92, off its $52.51 intraday low.

Slated for a nearly 49 per cent decline in 2014, Brent's retreat is set to be the biggest since 2008, when prices fell 51 per cent in response to a demand slump after the financial crisis. Prices then were eventually propped up when the Organisation of Petroleum Exporting Countries (OPEC) formally decided to cut production.

In contrast, OPEC this year, at a November 27 meeting, decided against a cutback to defend its market share, against shale oil and other competing supply sources, despite its own forecasts of a growing surplus in 2015.

"Fundamentally, the market remains weak with the near 2 million barrels build in Cushing that kind of offsets the total drop of almost as much in [overall] crude stocks," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

Crude stocks rose 2 million barrels at the Cushing, Oklahoma, delivery point for the US crude contract, the EIA said.

Crude prices came under more pressure on Wednesday from a survey showing China's factory sector shrank for the first time in seven months in December, a bearish indication on the strength of oil demand in the world's second-largest consumer.

Turmoil in Libya has effectively led to a drop in OPEC supply in December to a six-month low, a Reuters survey showed on Tuesday, although forecasts still point to a large excess supply next year.

The Obama administration on Tuesday reacted to months of increasing pressure to lift a 40-year-old ban on exports of most domestic crude, taking two steps expected to increase the flow of ultra-light oil, or condensate, onto the global market.

"We expect a gradual, but slow increase of stabilised condensate exports over the next year," analysts at JBC Energy indicated in a report.

The Seaway Twin crude oil pipeline shipped initial volumes to the Gulf Coast from Cushing on December 21, the company said on Wednesday.

Allowing more crude to get to the Gulf Coast's giant refining hub is expected to be a bearish development for US crude futures.