Oil settled 2 percent lower on Tuesday, extending losses for a second straight day, as the market yielded to technical resistance after running above $40 a barrel and worry that U.S. crude stockpiles were rising despite falling production.
Uncertainty over how the U.S. Federal Reserve will word its policy statement on Wednesday also fed jitters in financial markets. [MKTS/GLOB]
The oil market will be on the look out later on Tuesday for preliminary data on U.S. crude stockpiles, due at 4:30 p.m. EDT (1830 GMT) from industry group American Petroleum Institute (API).
The government-run Energy Information Administration (EIA) will issue official inventory numbers on Wednesday, forecast to show U.S. crude stockpiles at record highs for a fifth straight week.
Crude had rallied about 50 percent over the past six weeks after talk that major oil producers planned to freeze output at January levels boosted a market that sank to 12-year lows on a supply glut.
But the production freeze plan by OPEC and Russia has made little progress, with No. 4 oil producer Iran still determined to double or restore its crude exports to pre-sanction levels before limiting any output.
After hitting three-month highs of more than $41 a barrel on Brent and above $39 on U.S. crude last week, the rally encountered technical fatigue, analysts said.
“The rally is now retreating on fears that OPEC will continue to flood the market with oil in a world where demand may falter,” said Phil Flynn, analyst at the Price Futures Group in Chicago.
Brent LCOc1 settled down 79 cents at $38.74 a barrel, a 2 percent drop similar to Monday’s.
U.S. crude CLc1 finished down 84 cents, or 2.3 percent, at $36.34. In the previous session, it fell 3 percent.
U.S. gasoline, also known as RBOB RBc1, fell for a second straight day as well, sliding 1 percent to $1.4082 a gallon.
“The rot is setting in,” technical analysts at PVM Associates in London said, citing potential near-term threat to support for Brent at $38.34 and for U.S. crude at $36.04. They also noted RBOB’s failure to hold above the eight-day moving average of $1.4121.
Some said the market appeared to be pacing the slide and it was too early to call the rally over.