Oil prices drop as concerns over global fuel glut re-emerge

Oil prices fell more than a percent on Wednesday as a report showing a surge in U.S. crude stocks, rising production in Nigeria and squabbling among producers about a planned output cut re-ignited concerns about a global supply glut.

Brent crude futures were down 61 cents, or 1.20 percent, at $50.18 a barrel as of 0417 GMT. Prices hit $50.17 earlier in the session, the lowest in about three weeks. U.S. crude was at $49.27 per barrel, down 69 cents, or 1.38 percent, from its settlement on Tuesday.

“Crude is on the defensive this morning following American Petroleum Institute (API) inventory numbers showing a rise of 4.8 million barrels against an expected rise of 1.7 million,” said Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore.

Official data by the Energy Information Administration (EIA) is due later on Wednesday.

“EIA crude inventory figures will be closely watched tonight. A large jump in inventories will no doubt see crude pushed lower again,” Halley said.

The oil market is also keeping an eye on U.S. currency movements for trading cues.

The dollar hit a nine-month peak overnight against a basket of currencies, underpinned by expectations U.S. rates will rise by the year-end, making commodities priced in the greenback expensive for holders of other currencies.

“Technical resistance with Brent above $50 might (also) be driving some activity,” said Michael McCarthy, chief market strategist at Sydney’s CMC Markets.

According to a Reuters market analyst, Brent could drop further to $49.67, the next support level.

Traders said squabbles within the Organization of the Petroleum Exporting Countries (OPEC) about a planned output cut later this year were weighing on oil markets too.

Iraq, OPEC’s second biggest oil producer, wants to be exempt from the cut, arguing it needs the revenues to fight Islamic State.

Other OPEC-members, including Libya and Nigeria, are likely to be exempt from cutting production, while Iran and Venezuela and Indonesia are also unlikely to reduce output.

Royal Dutch Shell has resumed crude exports from the Forcados terminal in Nigeria’s restive Niger Delta following repairs after a militant attack, the Nigerian presidency said late on Tuesday.

Unless non-OPEC production giant Russia joins the effort, that leaves the onus of a potential cut with Arab producers in the Middle East like Saudi Arabia, Kuwait and the United Arab Emirates (UAE).

“OPEC appears to be approaching the limits of its ability to jawbone oil higher without something concrete to put on the table,” OANDA’s Halley said.