Oil falls on U.S. supply record, weak demand outlook

Oil slid on Thursday, dented by record U.S. crude inventories, worries about the demand outlook and a Goldman Sachs forecast that prices would remain low and volatile until the second half of the year.

In a sign that producers are still competing for market share by lowering prices, Iran offered its crude to Asia at a discount to rival OPEC producer Saudi Arabia.

Brent crude futures LCOc1 were down 51 cents at $30.33 per barrel at 6.57 a.m. ET.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $26.37 per barrel, down $1.08 and not far off the $26.19 intraday low hit in January that was their weakest price since 2003.

“We’re grinding lower on bearish fundamentals,” said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.

“There’s a price fight within OPEC for Asian market share, and there are worries that storage capacity is going to be breached.”

He added that oil’s fall was also part of a general move in global markets away from riskier assets. Investors flocked to safe haven assets such as gold, the Japanese yen and top rated bonds.

Inventories at the Cushing, Oklahoma delivery point for U.S. crude futures rose to an all-time high just shy of 65 million barrels, data from the government’s Energy Information Administration (EIA) showed on Wednesday.

Goldman Sachs said the overhang in oil supplies, together with an economic slowdown in China, means prices will remain low until the second half of the year.

“We expect oil prices will continue to fluctuate between $20 per barrel (operational stress level) and $40 per barrel (financial stress level) with significant volatility and no price trend until 2H2016,” it said in a client note.

OPEC producer Iran has cut its Heavy crude price for export to the Mediterranean by a larger amount compared with top exporter Saudi Arabia as Tehran seeks to attract more buyers after sanctions were lifted.

The region is one of the battlegrounds for Iran as it tries to reclaim market share lost in the last few years when western sanctions restricted Iranian crude imports.

Oil prices have fallen almost 75 percent since mid-2014 as competing producers pump 1-2 million barrels of crude every day in excess of demand, just as China’s economy grows at its lowest rate in a generation.