By Anna Hirtenstein 

Oil prices dropped as Saudi Arabia made moves to worsen the oversupply of crude in the market amid the country's price war with Russia.

Brent crude, the global benchmark, declined 4.9%, trading below $25 a barrel in the European morning and close to the 17-year low it hit last month. Its U.S. counterpart, West Texas Intermediate, fell 1.7%.

Saudi Arabia raised production above 12 million barrels a day on Wednesday, following through on threats it made in recent weeks. That's about two million barrels a day more than a month ago.

Also weighing on prices, the Organization of the Petroleum Exporting Countries failed to agree on whether to meet this month for an emergency discussion on recent volatility in oil markets. This signaled a widening rift between members and reduced the likelihood of supply cuts in the near future.

President Trump said Tuesday that he has raised the issue of the oil market's struggles with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.

"I think many are quite skeptical about what they can really do. There's still problems with the coronavirus with forecasts of 20% to 25% of oil demand gone," said Thina Saltvedt, chief energy analyst at Nordea. "Even if we get some kind of agreement, it will be difficult to balance the market for a while."

Oil prices have just closed out their worst quarter on record, with Brent declining more than 60% from the start of the year. The combination of a demand shock from governments shutting down countries to halt the spread of the coronavirus and an oil-price war between Russia and Saudi Arabia has resulted in unprecedented supplies of oil in the market.

Statistics on inventories in the U.S. Tuesday showed the extent of the oversupply. Crude inventory growth was over two times more than survey estimates at 10.5 million barrels in the latest week, and gasoline was more than three times higher. Traders are awaiting additional numbers from the U.S. Department of Energy, which will be out later Wednesday.

The benchmark contract for selling Brent crude forward changed from May to June on Wednesday, prompting a wave of activity among investors as they closed out previous contracts, bought oil at the spot price and sold it forward in a fresh contract.

Normally this could push spot prices up, but the record-high costs for storage are compressing it, said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB. Investors can only buy crude at rock-bottom prices because they have to factor in the high cost of storing it until their contract expires, he said, adding that the price of renting a certain class of tanker has risen to $200,000 a day, up from an average of about $30,000 last year.

"The higher the cost it is to rent, the bigger the discount for spot prices must be," Mr. Schieldrop said. "In this case we need a big difference between the spot and forward; the spot needs to move rapidly down."

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

(END) Dow Jones Newswires

April 01, 2020 10:15 ET (14:15 GMT)

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