Oil prices dropped two per cent overnight as US equity markets broadly fell, even though energy traders worried about shrinking Iranian supply from US sanctions and kept an eye on Hurricane Michael, which closed some US Gulf of Mexico oil output.
Brent crude futures fell $US1.91, or 2.3 per cent, to settle at $US83.09 a barrel.
The global benchmark posted a 1.3 per cent gain on Tuesday.
US West Texas Intermediate crude futures fell $US1.79 to settle at $US73.17 a barrel, a 2.4 per cent loss.
US stocks markets skidded, on track for the biggest daily decline since April, and the sell-off intensified as the day wore on as rising US Treasury yields and trade policy related worries sent investors fleeing for safety.
‘As long as we continue to see broad-based weakness in the equity sector, that’s going to start spilling over into other areas as well,’ said Brian LaRose, a technical analyst at United-ICAP.
‘One in particular will be energy because it’s all about economic expectations.’
Risks to the global financial system have risen over the past six months and could increase sharply if pressures in emerging markets escalate or global trade relations deteriorate further, the International Monetary Fund said.
On Tuesday, the IMF cut its global economic growth forecasts for 2018 and 2019, raising concerns that demand for oil may also slump.
In the US Gulf of Mexico, producers have cut oil output by roughly 42 per cent due to Hurricane Michael, the Bureau of Safety and Environmental Enforcement said on Wednesday, citing reports from 30 companies.
The cuts represent 718,877 barrels per day of oil production.
The storm made landfall in Florida on Wednesday as a Category Four hurricane.
While crude output has been cut because of the hurricane, ‘down time is expected to be brief and Gulf of Mexico output now accounts for a comparatively small portion of total US production,’ Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
Worries about crude supply from the Middle East have given prices some support.
Iran’s crude exports fell further in early October as buyers sought alternatives ahead of US sanctions that take effect on November 4, according to tanker data and an industry source.
Saudi Arabia, the world’s biggest oil exporter, will supply Indian buyers with an additional four million barrels of crude oil in November, several sources familiar with the matter said.
India is Iran’s top oil client after China.
Several of the world’s biggest trading houses expect US sanctions on Iran to keep oil prices high, with crude staying above $US65 and possibly breaking above $US100 in the medium term.
US crude oil output this year was expected to rise 1.39 million bpd to a record 10.74 million bpd, the US Energy Information Administration said in its monthly forecast on Wednesday.
In the short term, the market was eyeing upcoming US inventory data which was forecast to show a 2.6 million-barrel rise in crude stocks for last week, the third straight weekly build.