Oil prices fell below $87 on Thursday, near their lowest in three and a half months, extending losses after big builds in weekly US crude and fuel stocks hinted at weaker demand in the world's top consumer.
Front-month US crude for March delivery <CLc1> fell 26 cents to $86.88 a barrel on the Globex electronic trading platform, taking losses so far this month to 5 per cent. Trade was thin with much of Asia closed for the Lunar New Year holiday.
Oil prices have tumbled from their January record above $100 on fears that the U.S. economy is slipping into recession. They have fallen below the $87 mark only a handful of times since it first broke above that level in mid-October.
US commercial crude stockpiles rose 7 million barrels last week, well above forecasts for a 2.6 million barrel build, while gasoline stocks rose 3.6 million barrels to their highest level since February 1994, data showed.
Refinery production rates slipped another 0.7 percentage points to stand a full 3 percentage points below a year ago, with weak underlying demand dampening profits, analysts said.
"Lower refinery throughputs reflect not only ongoing planned outages for maintenance in crude distillation, but also appear to combine a measure of discretionary run cuts as a result of a weaker refining margin environment," said Harry Tchilinguirian, Senior Oil Market Analyst at BNP Paribas.
Prices fell sharply on Tuesday after an influential report showed the vast U.S. services sector contracted to recessionary levels in January, reinforcing fears oil demand will slow under the weight of high prices and the fallout from a housing slump.
In addition to the souring economic outlook, fuel demand has been curbed this winter by milder than usual weather in the Northeast, normally a big consumer of heating oil.
The National Weather Service eight- to 14-day outlook released Wednesday called for normal or below-normal temperatures for the northern half of the United States, with above seasonal readings expected for the rest of the country.
The losses were offset by continued disruptions to Nigerian output, with Royal Dutch Shell declaring force majeure on exports from Nigeria's Bonny Light oil terminal due to security concerns, company officials said on Wednesday.
Opec Secretary-General Abdullah al-Badri said this week that the Organization of the Petroleum Exporting Countries could keep output at current levels when its ministers meet next month if there is no change in the market, although more hawkish ministers are already calling for a cut to offset weakening demand.
Opec opted to keep supply steady at last Friday's meeting. (Reuters)
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