U.S. crude fell to a six-year low below $43 on Monday as global inventories rose and negotiations progressed toward a possible nuclear deal with Tehran that could allow more Iranian oil exports.
Western powers are hoping for concessions from Tehran that could help clinch an agreement in nuclear talks this week after the United States and European powers voiced a willingness to compromise on suspending U.N. sanctions.
U.S. crude fell to $42.85, its lowest level since March 12, 2009, before rebounding to trade down $1.71 at $43.13 by 11:30 a.m. EDT (1530 GMT).
Brent for April dropped to a session low of $52.50. It last traded down $1.89 to $52.78.
Both benchmark crude futures contracts have fallen over the last two weeks on mounting evidence of a global glut that is filling oil inventories rapidly.
World stockpiles are rising at a rate of 1.6 million barrels per day (bpd), French bank Societe Generale estimates, and it forecasts the build will accelerate to 1.7 million bpd in the second quarter.
“Weakness hit the oil markets last week, and we expect it to continue,” Societe Generale oil analyst Michael Wittner said.
“The arithmetic works out to a combined build in crude oil and refined products of approximately 200 million barrels in March-June. Any way you slice it, this is bearish for prices.”
Libya’s oil production has risen to around 490,000 bpd, an industry source said on Monday, double the country’s output a few weeks ago.
China has been taking advantage of low prices to build up its strategic petroleum reserves, but analysts say new spare capacity will only become available later this year, denting near-term import needs.
Lower oil prices have encouraged exploration and production companies to cut back on the number of oil and gas drilling rigs employed in the United States and elsewhere, but this trend will take some time to translate into lower output.
Goldman Sachs analysts said in a research report that a falling U.S. rig count would only bring slightly lower production in the second quarter of this year.
Meanwhile, any sharp increase in production or exports from Iran would be very negative for oil markets.
“The prospect of an increase in Iranian oil sales as part of a new agreement in the next couple of months will only exacerbate OPEC oversupply, supporting our bearish outlook,” Barclays said.