Oil drops to four year low on back of rising supply

Brent oil dropped to a new four-year low below $82 a barrel on Wednesday, a fifth straight day of losses, as weak economic data from China and Europe intensified worries about demand as a global supply glut grows.

Services sector growth in China weakened in October as new business cooled, a private survey showed, coming just days after data revealed sluggish factory growth in the world’s second-largest economy.

Euro zone business growth picked up less than expected in October despite much deeper price cutting and was only marginally higher than September’s 10-month low, according to business surveys.

Brent crude for December fell 65 cents to $82.15 a barrel by 1130 GMT, having earlier reached the day’s low of $81.63, its weakest level since October 2010. US crude futures fell 35 cents to $76.84 a barrel, after hitting a three-year low of $75.84 in the previous session.

"Supply is higher and demand expectations are being cut almost every day," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam. Brazil's oil output reached a record 2.358 million barrels per day in September, up nearly 13 per cent from a year earlier, national oil regulator ANP said on Tuesday.

Consistent supply from Libya and Iraq, where many expected production to be disrupted by conflict, has added to the downward pressure on prices. The dollar index hit a new 4-1/2-year high on Wednesday, weighing on oil and driving gold prices to their lowest since April 2010.

Oil and other commodities priced in dollars become more expensive to holders of other currencies when the US currency rises, denting demand. US crude inventory data provided some support to US prices. Stocks fell by 639,000 barrels to 374.9 million in the week to October 31st, compared with analysts' expectations for a increase of 2.2 million barrels, data from industry group the American Petroleum Institute showed. The market is now awaiting weekly inventory data from the U.S. government's Energy Information Administration (EIA) later in the day for more clues on demand in the world's top oil consumer.

Oil prices on both sides of the Atlantic lost more than 2 per cent yesterday after Saudi Arabia cut export prices to the United States, threatening to deepen a global supply glut that has driven crude prices down 30 per cent since June. Analysts at Commerzbank said in a note on Wednesday, "Brent could well be putting the $80 mark to the test before long."

Saudi Oil Minister Ali al-Naimi is making his first visits in years to fellow exporters Venezuela and Mexico, although tumbling oil prices are not the stated purpose of the trip, according to officials and sources. Still, the travel plans come at a pivotal moment for Saudi Arabia and the Organisation of the Petroleum Exporting Countries, which meets later in November to discuss how to respond to the rout in global oil prices.

Reuters