By Eric Yep 
 

Oil prices fell in Asian trade Wednesday, extending losses from the previous session, as financial markets continued to show weakness and U.S. oil stockpiles likely grew further.

The oil market has been extremely volatile over the past couple of weeks. A massive three-day surge in oil prices of over 25% was reversed on Tuesday, with losses of around 8% as worries about China's economy resurfaced.

U.S. stocks closed sharply lower overnight on weak sentiment, and Asian markets were lower amid cautious trade Wednesday with the Shanghai Composite Index last down 3%.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at $44.38 a barrel at 0349 GMT, down $1.03 in the Globex electronic session. October Brent crude on London's ICE Futures exchange fell $0.87 to $48.69 a barrel.

After being violently whipsawed in recent days, oil prices are headed lower again as markets are reminded of the supply glut, Michael Wittner, head of commodities research at Societe Generale said in a report.

He said over the next couple of months up to early November there will be little in the demand-supply fundamentals to provide any sustainable uplift for oil prices amid a seasonal fall in crude demand. "Amidst all of the gut-wrenching oil market gyrations, the watchword certainly remains 'caution'," Mr. Wittner said.

Early inventory data reaffirmed the surplus in U.S. oil markets and pulled oil prices lower.

Late Tuesday, the American Petroleum Institute said U.S. crude stocks rose much more than expected last week, by 7.6 million barrels to 457 million barrels. The more definitive inventory data from the U.S. Energy Information Administration is due later Wednesday.

A separate study published Tuesday by the EIA concluded that lifting the current ban on U.S. oil exports wouldn't increase U.S. gasoline prices and could even help lower them, helping strengthen the case for exporting the surplus oil piling up in U.S. storage tanks.

In the event that the ban on U.S. oil exports is lifted, it will help the North American crude market reconnect with global oil flows, and help remove some of the oversupply concerns weighing on U.S. oil prices.

Paul Horsnell, head of commodities research at Standard Chartered Bank, said bearish views in the market are propping up the bear case for oil in 2016 and a rebuilding of short positions will continue to cause volatility in prices, but with little clear direction.

He however believes that oil supplies will become tighter going into 2016, and added that U.S. oil production is already responding to lower prices and domestic oil production may already be lower than was expected. Brent crude will move from an average of $51 a barrel in the first quarter of 2016 to $75 a barrel in the fourth quarter, Mr. Horsnell said.

Nymex reformulated gasoline blendstock for October--the benchmark gasoline contract--fell 187 points to $1.3769 a gallon, while October diesel traded at $1.5591, 188 points lower.

ICE gasoil for September changed hands at $469.50 a metric ton, down $12.25 from Tuesday's settlement.

Write to Eric Yep at eric.yep@wsj.com

(END) Dow Jones Newswires

September 02, 2015 01:49 ET (05:49 GMT)

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