Oil prices rebounded on Tuesday after U.S. crude fell below $37 per barrel and Brent broke below $40 for the first time since early 2009 amid fears the world was running out of capacity to store crude as a global glut intensifies.
The global oversupply is being compounded by OPEC`s failure last week to agree a production ceiling, with members Iran and Iraq promising to ramp up output and exports next year.
Benchmark Brent and WTI futures both fell more than 6 percent on Monday, and on Tuesday they hit fresh lows last seen during the credit crunch of 2008/09.
Internationally traded Brent futures were down 27 cents at $40.46 a barrel by 12 p.m. EDT (1700 GMT), having fallen below $40 per barrel earlier in the session for the first time since March, 2009.
U.S. crude was trading at $37.55 a barrel, down 10 cents from its last settlement after falling to a new nearly seven-year low.
Gasoline futures also recovered after falling to near 7-year lows in New York trading as the selloff in crude oil extended to a relatively stable spot on the U.S. petroleum complex.
"The lower levels are largely the result of a renewed focus on fundamentals now that the bulls` hope for an OPEC cut is off the table," JBC Energy said in a note.
The failure to agree production levels means OPEC core members are readying for new battles for share in the market already heavily oversupplied and consuming almost 2 million barrels per day less than it is producing.
"OPEC has lost control of the oil market and unless something fundamental changes that causes demand to overtake the oversupply in the market, the path of least resistance is the 2008 lows of $35-$38."
If Brent falls below $36 per barrel, it would reach levels last seen in 2004 at the start of the so-called commodities super cycle.
Banks such as Goldman Sachs have said oil could fall to as low as $20 per barrel as the world might run out of storage to place unwanted crude. World oil stockpiles are at a record, according to the International Energy Agency.
In yet another indication of fierce market battles, trading sources said Saudi Arabia was shipping more crude oil to Asia over the last two months of the year.
On the demand side, China`s appetite for cheap oil was helping to support prices as the government looks to build up its strategic reserves.
China`s crude oil imports for the first 11 months of the year rose 8.7 percent to 6.61 million barrels per day while its November crude imports grew 7.6 percent from the same month a year ago, according to preliminary customs data released Tuesday.
China`s November new vehicle sales also jumped 17.6 percent over the same period.
With crude prices near record lows, China is seen as likely to double its strategic crude oil purchases in 2016, adding some 70-90 million barrels to its strategic petroleum reserves (SPR).
"There is no doubt that weak commodity prices have induced some opportunistic buying. This should be mildly supportive for commodity markets," ANZ bank said.
But it added that given the country`s slowing economy, "we still don`t expect to see Chinese consumers start to aggressively restock with the outlook remaining weak."
At the same time crude imports are rising, the preliminary customs figures show China`s exports of refined products surged to 4.1 million tonnes in November, up 68 percent year-on-year. If the final numbers released later this month confirm the data, that would mean record exports of fuel from the country.
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