US oil price hits 6.5-year low

LONDON — Global oil prices tanked Wednesday to a 6.5-year low as a surprise jump in US crude inventories signalled weak demand in the world's top economy.

US benchmark West Texas Intermediate for September delivery dived to $40.60 per barrel, a level last seen on March 2009.

The contract, which has lost more than 30 per cent of its value in the past two months, later stood at $40.81, down $1.81 from Tuesday's close.

Brent North Sea crude for October tumbled to $46.81, nearing the lowest level since mid-January.

It later stood at $47.24 in afternoon London deals, down $1.58.

The market was pummelled after the US government's Department of Energy (DoE) reported that American crude inventories rose by 2.6 million barrels in the week to August 14.

That confounded expectations for a drop of 820,000 barrels, according to analysts polled by Bloomberg News.

"The price of US oil has fallen to a fresh six-year low today," said analyst Fawad Razaqzada at trading site Forex.com. "The level of US crude stockpiles actually increased last week, and by 2.6 million barrels, no less."

"The increase was in part because of a major refinery outage in the US Midwest and due to a sharp rise in oil imports, which averaged over 8 million barrels per day (bpd) last week, up a good 465,000 bpd from the previous week," he added.

CMC Markets analyst Jasper Lawler indicated that the increase in crude inventories "was the biggest build in four months and demonstrates the resilience of US oil output despite the falling price".

Reserves of distillates, including heating fuel and diesel, rose 600,000 barrels last week, the DoE said. Analysts had pencilled in a drop of 1.5 million.

And stocks of gasoline or petrol recoiled by 2.7 million barrels, which was far heavier than an anticipated decline of 1.25 million.

The weekly DoE update is a crucial barometer of crude demand in the world's biggest economy, which is also a large producer of shale oil.

Analysts said prices were unlikely to stage a sustained rally because the market remains awash with supplies from the Organisation of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia.

Analyst Razaqzada cautioned that the oil market remained plagued by slowing Chinese demand, alongside rebounding Iranian oil supplies in the wake of Tehran's nuclear energy deal with the West.

"The prospect of fresh supplies from Iran and potentially weaker demand growth from China and the likes means the global supply glut could be worse than was expected previously," he indicated. "As such, the outlook for oil prices remains bleak." 

Iran last month also reached an agreement with major world powers to rein in its nuclear ambitions in exchange for the lifting of crippling Western economic sanctions, which have restricted its oil exports.

Meanwhile, demand growth is not keeping pace with supply, especially with the slowdown in China, the world's top energy-consuming nation and its second-biggest economy.