Brent Steadies Above $85 After Biggest Fall in Three Years

Brent crude edged higher on Wednesday, holding above $85 a barrel after its biggest daily fall in three years in the previous session, a drop of nearly $4 that pushed prices to the lowest since late 2010 in an oversupplied market.

Worries about oil supply exceeding demand in a slowing global economy have sparked a rout since prices hit the year's high in mid-June. Brent has fallen about $30 since then.

Comments from core OPEC members, including Saudi Arabia, Kuwait and Iran, signalling the group was unlikely to cut output to support the market have further depressed prices.

Brent for November ticked up 26 cents to $85.30 a barrel by 0612 GMT. In the previous session, the front-month contract had slipped below $85 a barrel for the first time since late 2010.

US crude gained 20 cents to $82.04 after posting its largest fall in a single session in nearly two years.

"There is a very old and much-used cliche about standing under a falling knife which is exactly about this situation," said Ric Spooner, chief analyst at CMC Markets in Sydney.

"You've got very strong selling going on and until the market begins to show some signs of losing momentum, it's safest to assume that the worst is yet to come."

A break below support levels may have fuelled selling overnight as investors cut losses or took on short positions in anticipation of lower prices, Spooner said.

Wall Street banks have scrambled this week to neutralise their exposure to big oil option trades, adding to the downward spiral.

The slump has prompted banks to revise down their oil price forecasts. ANZ has trimmed its forecasts by 9 per cent, expecting Brent to trade at $94 a barrel and West Texas Intermediate at $90 by end-December, the bank said in a note on Wednesday.

"Brent's net position in particular looks prone to short-covering as winter demand kicks off in late November," ANZ said.

SUPPLY GLUT, WEAK DEMAND

On Tuesday the International Energy Agency cut its demand growth forecast for oil in 2015 as global economies remain weak.

And Iran said it could live with lower oil prices, after similar signals from Saudi Arabia and Kuwait.

"A clear sort of signal coming in from statements of OPEC members is that they are not likely to be defending the oil price at around these levels," Spooner said.

Shale oil output continued to rise in the United States, with production set to grow by some 106,000 barrels per day in November from this month, projections from the US Energy Information Administration showed on Tuesday.

US commercial crude oil inventories were forecast to have increased in the week ended October 10, while refined products likely fell, according to a Reuters poll of analysts.

Industry group the American Petroleum Institute (API) will issue its report later on Wednesday, and the EIA will follow with its weekly data on Thursday. The reports have been delayed a day due to Monday's Columbus Day holiday.

Copyright: Thomson Reuters 2014