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NEW YORK - Oil dropped below US$50 a barrel for the first time since May 2005 on Thursday after US inventory data showed a sharp crude supply build in the world's top oil consumer.
US crude futures CLc1 tumbled US$1.74 to US$50.50 a barrel by 1929 GMT, after hitting a 20-month low of US$49.90. London Brent LCOc1 traded US$1.01 lower at US$51.77 a barrel.
US crude stockpiles rose by 6.8 million barrels last week, the Energy Information Administration said, far surpassing expectations for a 100,000-barrel rise as warm weather in early January limited winter heating demand.
Domestic distillate supplies, including heating oil, rose 900,000 barrels while petrol stocks jumped 3.5 million barrels. EIA/S
"The market is selling off on the shocking headline showing huge builds in crude stocks," said Phil Flynn, analyst for Alaron Trading.
Analysts say a firm break below US$50 a barrel could cause an even steeper price slide by triggering sell options held by oil producers.
Prices have hit fresh 20-month lows for three consecutive sessions after Saudi Arabia said production cuts by the Organisation of the Petroleum Exporting Countries were working well and an emergency meeting of the cartel was not necessary.
"After seven-plus weeks of a drawdown, the build in inventory with Opec cutting is a major negative," Christopher Jarvis, an analyst at Caprock Risk Management, said.
"Coupled with products also building robustly in the dead of winter only compounds the short-term problems for crude oil."
Prices found some support early in the session from a cold snap in the United States, which triggered the long-awaited winter demand for heating fuel.
"Current US weather forecasts should also provide some staying power to yesterday's higher move," said Man Financial.
Colder weather in the US Northeast -- home to about 80 per cent of the nation's heating fuel consumption -- was expected to push heating oil demand above average for most of the week, private forecaster DTN Meteorlogix said.
The National Weather Service said temperatures could average below normal along the eastern seaboard for another two weeks, though some warming could reach the Midwest and West next week.
But the icy weather has come late and oil supplies are already ample, analysts said, limiting the price effects.
- REUTERS
