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Oil plunges nearly 4%, hitting 7-month closing low of $44.73, on spike in US gasoline stockpiles

  • Crude oil prices plunged more than 3 percent to five-week intraday lows.
  • Gasoline stockpiles rose by 2.1 million barrels in the week through June 9, compared with expectations for a 457,000 barrels drop.
  • U.S. commercial crude oil inventories fell by 1.7 million barrels, versus expectations for a 457,000 barrels drop.

Oil prices fell to a seven-month closing low on Wednesday after data showed an unexpectedly large weekly build in U.S. gasoline inventories and International Energy Agency (IEA) data projecting an increase in non-OPEC production.

U.S. crude fell $1.73, or 3.7 percent, to end Wednesay's session at $44.73, the lowest level since Nov. 14. It earlier fell to a five-week intraday low of $44.54.

Brent crude fell as low as $46.74 following the report. It recovered slightly to $47.03 by 2:38 p.m. ET (1838 GMT), down $1.69 a barrel, or 3.5 percent.

Prices were little changed after the Federal Reserve raised its benchmark interest rate by a quarter of a percent.

The increase in U.S. gasoline inventories drove down RBOB futures by about 4.5 percent, tugging Brent and U.S. crude futures lower with them, analysts said.

"Oil futures are being dragged down by gasoline futures. The industry continues to turn a crude oil surplus into a gasoline and distillate product surplus," Andrew Lipow, president of Lipow Oil Associates in Houston said.

That decline pushed both contracts to their lowest since May 5, driving them into technically oversold territory.

The U.S. Energy Information Administration (EIA) said gasoline inventories increased by 2.1 million barrels during the week ended June 9, while crude inventories decreased by 1.7 million barrels.

That compares with analysts estimates in a Reuters poll for a 0.5 million barrel draw in gasoline stocks and a 2.7 million barrel draw in crude inventories.

Oil futures had already come under pressure following reports that showed global supply was rising, fueling concerns the market could remain oversupplied for longer than expected.

The IEA said on Wednesday it expected growth in non-OPEC supply to be higher next year than growth in overall global demand.

"For total non-OPEC production, we expect production to grow by 700,000 bpd this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply," the IEA said in its monthly oil market report.

Shale supply has pushed U.S. crude production up by about 10 percent over the last year to 9.3 million bpd — not far below the output of top exporter Saudi Arabia.

"The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from U.S. shale," said William O'Loughlin, analyst at Australia's Rivkin Securities.

The oil market needs strong demand to help offset the rapid increase in supply.

Global energy demand grew by 1 percent in 2016, roughly in line with the previous two years, but well below the 10-year average of 1.8 percent, BP said in its benchmark Statistical Review of World Energy on Tuesday.

Crude prices have fallen more than 10 percent since late May, pulled down by heavy global oversupply that has persisted despite a move led by the Organization of the Petroleum Exporting Countries to curb production.

OPEC and other exporters such as Russia have agreed to keep production almost 1.8 million barrels per day (bpd) below the levels pumped at the end of last year and not to increase output until the end of the first quarter of 2018.

But adherence to the cuts is under scrutiny and the producer group said this week that its output rose by 336,000 bpd in May to 32.14 million bpd.

— CNBC's Tom DiChristopher contributed to this report.