Oil slides back below $30 after biggest two-day drop in nearly seven years

A customer fills up a vehicle with fuel at an Exxon Mobil gas station in Rockford, Illinois, US. Exxon Mobil is cutting its drilling budget to a 10-year low amid the price slump. Daniel Acker / BloombergShow less

Oil extended its decline below $30 a barrel after the biggest two-day drop in almost seven years as US industry data showed crude stockpiles increased, exacerbating a global surplus.

Futures decreased as much as 1.6 per cent in New York after falling 11 per cent the previous two sessions, the most since March 2009. Inventories expanded by 3.8 million barrels last week, the American Petroleum Institute was said to report Tuesday. Government data Wednesday is forecast to show supplies rose further from a record, according to a Bloomberg survey. Exxon Mobil is cutting its drilling budget to a 10-year low amid the price slump.

Oil has lost about 20 per cent this year amid brimming US crude supplies and the outlook for increased exports from Iran after the removal of international sanctions. Chevron’s credit rating was cut by Standard & Poor’s for the first time in almost three decades and Royal Dutch Shell had its debt rating reduced to the lowest since S&P began coverage in 1990.

“The market is severely oversupplied,” Evan Lucas, a market strategist at IG in Melbourne, said by phone. “Even if there are production cuts, stockpiles are so high that it will likely keep prices depressed. Oil will continue to fluctuate around $30 a barrel through to the end of March.”

West Texas Intermediate for March delivery slid as much as 48 cents to $29.40 a barrel on the New York Mercantile Exchange and was at $29.67 at 10.55am Hong Kong time. The contract lost 5.5 per cent to $29.88 on Tuesday, closing below $30 for the first time since January 21. Total volume traded was about 7 per cent above the 100-day average.

Brent for April settlement fell as much as 42 cents, or 1.3 per cent, to $32.30 a barrel on the London-based ICE Futures Europe exchange. The contract dropped $1.52 to $32.72 on Tuesday. The European benchmark crude was at a premium of $1.16 to WTI for April.

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, increased by 141,000 barrels last week, the API said, according to a person familiar with the figures. Nationwide supplies probably expanded by 4 million barrels through January 29, the Bloomberg survey shows before an Energy Information Administration report Wednesday. Inventories during the previous period expanded to 494.9 million barrels, the highest level in weekly data published by the EIA since August 1982.

Exxon is curbing its spending on rig leases, floating oil platforms, gas terminals and other projects by 25 per cent this year to $23.2 billion, according to a statement on Tuesday. That represents the leanest spending plan since 2007, the second year on the job for chairman and chief Executive Officer Rex Tillerson. Share buybacks that cost the Irving, Texas-based company half a billion dollars during the final three months of 2015 also have been suspended.

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