NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower across the board Wednesday afternoon as a supply-driven selloff deepened, with spot-month West Texas Intermediate falling to its lowest price point since May 2003 before expiring down 6.7%.
The oil selloff triggered another round of liquidation in the equities market, driving major Wall Street stock indices to the lowest point in nearly two years. Investors are worried the relentless decline in oil prices reflects not only a glut of oil supply but also weakening demand due to a slowing global economy.
"It's falling equity prices that are reinforcing fears regarding global economic health, and so we see evidence of a downward spiral, at least when it comes to market sentiment," said Tim Evans, an analyst at Citi Futures.
He added, "In our view more than fear is at work, though, as the oil market has an underlying physical surplus, newly enlarged and extended by the addition of unrestricted Iranian production."
NYMEX February WTI crude expired down $1.91 at $26.55 per barrel (bbl), moving off a new 12-1/2 year spot low of $26.19, with the March WTI futures contract settling down $1.22 at $28.35 bbl.
On the IntercontinentalExchange, March Brent futures settled down 88 cents at $27.88 bbl, edging off a $27.10 better than 12-year low on the spot continuation chart.
In products trade, February ULSD futures slumped 4.30 cents to a $0.8657 gallon settlement, off a new 12-year low on the spot continuation chart of $0.8538. The February RBOB futures contract eased 0.85 cents to $1.0177 gallon after inside trade, with the contract having posted a seven-year spot low at $1.0005 on Tuesday.
On Wall Street, the Dow Jones Industrial Average cut losses to roughly 250 or 1.6% after plunging about 500 points earlier in the session. The U.S. dollar bounced off a three-day low as currencies attracted investors fleeing from risk assets such as equities and commodities.
The bearish sentiment was heightened after the International Energy Agency on Tuesday said the oil market could drown in oil as supply continues to outpace demand and available storage space dwindles.
IEA expects inventory to build by 285 million bbl in 2016, with output cuts by non-OPEC producers offset by new oil supply from Iran.
Iran won relief from international sanctions on its crude oil exports on Saturday (1/16). Tehran previously said it would immediately export 500,000 bpd of new crude exports followed by another 500,000 bpd in exports in six months. The IEA projects Iranian exports would reach 300,000 bpd at the end of the first quarter.
Sluggish economic growth added to the bearish market sentiment, raising fresh questions about demand. The International Monetary Fund revised down its 2016 global growth rate to 3.4% from an earlier estimate of 3.6%.
For months, the market has worried about China's economic slowdown, but recent data from the United States have also been soft, prompting fresh questions on whether U.S. growth is starting to be impacted.
Stephen Schork, analyst and editor of the Schork Report, said support for WTI is now found at $25. The current contango market for WTI, where near-term prices are lower than prices for forward delivery months, suggests demand is below supply, Schork added.
Meantime, U.S. crude stocks are seen to have increased by 2.7 million bbl on average for the week-ended Jan. 15, with gasoline stocks up 2.2 million bbl and distillate supplies up 1.3 million bbl.
The American Petroleum Institute will release its weekly oil data at 4:30 PM ET, with the Energy Information Administration's data due out at 11:00 AM ET Thursday.
George Orwel can be reached at email@example.com
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