Oil Prices Touch Multi-Week Lows, As Supply Worries Grow

By Dmitry Zhdannikov

LONDON (Reuters) - Oil prices fell to their lowest in six weeks on Tuesday, as mounting worries over persistent oversupply grew ahead of U.S. data that was expected to show another increase in crude inventories.

Brent December futures fell 82 cents to $47.72 a barrel by 1338 GMT, their lowest since mid-September, after settling the previous session down 45 cents.

U.S. crude dropped $1.10 to $42.88 a barrel, having touched a nine-week low of $42.74 earlier in the day.

The difference between the price of oil for immediate delivery and in a year's time yawned to its widest in more than six months, reflecting investors' perception that supply is likely to be far more widely available now than in the future.

"It continues to show excess (supply) in the market in this quarter and going forward ... it's only really in the last quarter of next year when we could potentially see some rebalancing of the market," Natixis commodity strategist Abhishek Deshpande said.

"What markets don't tend to realize is the overhang of crude, which has been developing since September last year, will go into the end of next year," he said.

Oil tankers sit anchored off the Fos-Lavera oil hub near Marseille, France, October 15, 2015. REUTERS/Jean-Paul Pelissier

U.S. production cuts - from a peak of around 9.6 million barrels a day to around 9.1 million - and optimism over demand have failed to translate into higher prices, said Ric Spooner, chief market analyst at Sydney's CMC Markets.

U.S. commercial crude stockpiles are expected to have risen for a fifth straight week, by an average of 3 million barrels to 479.6 million, in the week ended Oct. 23, a Reuters survey showed.

While stocks of distillates, which include diesel and jet fuel, are expected to fall by 2 million barrels, storage utilization for distillates in the United States and Europe is nearing historic highs, Goldman Sachs said on Monday. [EIA/S]

Also weighing on prices was news that U.S. congressional leaders had proposed to sell 58 million barrels of oil from U.S. emergency reserves to help pay for a budget deal, although the sales would happen only between fiscal years 2018 and 2025.

Longer-term, non-OPEC supply could fall next year for the first time since 2008 as deep cuts in capital expenditure by publicly traded companies lead to a 700,000 barrels-per-day fall in production to 52.7 million bpd, Jefferies added.

Analysts from the Energy Aspects think-tank added that some 5 million bpd of projects, which were meant to be completed from 2017-19, had been delayed or canceled: "All of this will start to show up in steep declines in 2017 supplies."

Investors await the outcomes of key policy talks this week, including a U.S. Federal Reserve meeting that starts later on Tuesday and China's fifth plenum, a meeting of the Communist Party's central committee, that began on Monday.

Oil prices could get support from short-covering if investors think the Fed will take a dovish view towards interest rates at its meeting, Spooner said.

"The Fed and a weaker dollar could save the day, as could improved supply statistics. That could still mean that this downswing might turn out to be a correction of the latest rally, not the beginning of a major move lower," Spooner said in a blog post.

(Additional reporting by Keith Wallis in Singapore and Amanda Cooper in London; Editing by William Hardy)