Oil prices fell sharply on Tuesday as a sell-off in US stocks rekindled worries over the health of the economy in the world's largest energy consumer. Expectations that a US government report to be released on Wednesday would show a rebound in the nation's crude oil inventories also weighed on the market, dealers said.
US crude for April delivery settled down 98 cents at $57.93 a barrel, after trading as high as $59.95. London Brent crude settled up 16 cents to $60.90. US oil's slide from $62 a barrel at the start of the month comes against the backdrop of a looming Opec meeting in Vienna on Thursday. Opec members are widely expected to leave existing supply curbs of 1.7 million barrels per day in place.
"It is unlikely they will change production," Opec Secretary General Abdullah al-Badri told Reuters. Wednesday's losses on the oil market came as US stocks slumped. The Dow Jones industrial average posted its second-biggest drop of the year on the back of a weak subprime mortgage sector and disappointing retail sales.
"The sharp fall in the US stock market caused by worries on the subprime mortgage lending sector touched off selling in crude as it revived fears of an economic slowdown," said Phil Flynn, analyst at Alaron Trading in Chicago.
Adding to oil's losses, analysts polled by Reuters said they expected a report from the US Energy Information Administration Wednesday to show a 1.6 million barrel increase in US crude oil stockpiles. "Crude is backtracking. There's plenty of crude around and the (supply) tightness is really on products," said Tom Knight of Truman Arnold.
Poor weather slashed imports of crude oil in late February, cutting into stockpiles, but experts said that imports are likely to rebound when the ships get back on schedule. The EIA report was also forecast to show a 2.4 million barrel decline in gasoline stocks - a key fuel leading into the summer driving season - and a 2.0 million fall in distillates, including heating oil.
Crude prices had been firmly in positive territory earlier in the day after the Paris-based International Energy Agency said the world would need extra Opec oil in the coming months. The IEA said Opec supply curbs, together with February's cold snap in leading energy consumer the United States, had helped to bring about a steep decline in oil stocks in industrialised nations.
"Preliminary data suggest that OECD stocks have fallen by over 1.26 million bpd over the first two months of the year, and could be heading for the largest first quarter stock draw for over 10 years," the IEA, adviser to 26 industrialised nations, said in its monthly report.