Oil headed for its biggest two-year loss on record in New York as an expansion in US crude stockpiles exacerbated a global glut.
Futures have lost 32 per cent this year, poised for a second annual loss that exceeds the magnitude of the slump during the Asian economic crisis from 1997 to 1998. US crude inventories increased by 102 million barrels, or more than 25 per cent, over the year, according to Energy Information Administration data. Russia ended 2015 with weekly oil production setting a post-Soviet record, according to Energy Ministry data.
Oil is trading near levels last seen during the global financial crisis amid signs the oversupply will be prolonged after the Organisation of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month.
Additionally, US crude output is poised to grow for a seventh straight year, and Russian producers are proving resilient to the price slump.
"There's a lot of oil in tanks and we will have to see stockpiles start to decline in a major way before prices recover," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Total volume traded on the New York Mercantile Exchange was 55 per cent below the 100-day average. Prices have decreased 12 per cent in December.
Brent for February settlement advanced 39 cents to $36.85 a barrel on the London-based ICE Futures Europe exchange. Prices are down 36 per cent this year, a third consecutive annual loss. The European benchmark crude, which has averaged a $4.62 premium to WTI this year, traded at a 19-cent premium to New York futures.
The gap between Brent and WTI has shrunk amid speculation the removal of a 40-year ban on US crude exports may ease the nation's oversupply. But with the spread at parity or negative, shipments into the US will probably remain elevated, which may create storage problems on the Gulf Coast during the first half of 2016, Citigroup Inc. said in a research report on Wednesday.
Vitol Group has already committed to buying US shale oil following the lifting of the crude export ban. The Swiss commodity trading company will purchase two cargoes of crude, the first of which will be ready to sail as soon as Thursday, according to ConocoPhillips, which will supply the crude.
US crude stockpiles rose by 2.63 million barrels through December 25 and production increased for a third week, the EIA said in a report on Wednesday. Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed to a record 63 million barrels. The hub has a working capacity of 73 million barrels, according to the EIA.
The glut may deepen as the worst flooding across the US Midwest in four years shut some oil pipelines and terminals near St. Louis. The biggest to close is Enbridge Inc.'s Ozark pipeline, which was booked to carry about 200,000 barrels a day this month to Wood River, Illinois, from Cushing.
Russia's oil output is poised to reach a post-Soviet record of 10.86 million barrels a day this week, according to Energy Ministry data. The country's crude and gas condensate production for the whole of December is on track to average 10.783 million barrels a day, almost matching November's record of 10.785 million, according to Bloomberg estimates based on the data.
Russian companies have been helped by a weaker ruble that reduced the cost of services such as drilling, and a tax system in which the state bears most of the risk and reward from price movements.
OPEC crude output rose by 18,000 barrels to 32.139 million a day this month, according to a Bloomberg survey of oil companies, producers and analysts. The group has pumped more than 30 million barrels a day for 19 months. Iran, which plans to boost exports next year once international sanctions are lifted, sees the potential for further price declines, said Rokneddin Javadi, the head of National Iranian Oil, according to the Shana news agency.