Oil prices fell more than 2 percent on Thursday, heading for their sharpest weekly loss since January, as investors brushed aside talk that OPEC might freeze production and focused on a growing glut from U.S. crude stockpiles.
Energy monitoring service Genscape's report of a 714,282-barrel drawdown at the Cushing, Oklahoma, delivery point for U.S. crude futures during the week ended on Aug. 30 did little to bolster sentiment, traders said.
Investors focused instead on Wednesday's government data showing a 2.3 million-barrel build in U.S. crude stocks in the last week, more than double what the market had expected. Inventories of distillates, which include diesel and heating oil, rose nearly 10 times as much as forecast, the data from the U.S. Energy Information Administration showed.
"The high U.S. inventory data suggest oversupply will remain for longer than expected," said Hans van Cleef, senior energy economist at ABN AMRO Bank N.V. in Amsterdam.
"On top of that, anticipation of a higher dollar if the Fed starts to hike rates is negative for oil prices. And there's also uncertainty about the likelihood of OPEC/non-OPEC action at the end of the month."
Brent crude futures for November fell $1.35, or 2.88 percent, to $45.52 a barrel.
U.S. crude futures were down $1.54, or 3.45 percent, to $43.16 a barrel, marking a three-week low. It's the worst settle since August 11, with a close of $43.49.
Both Brent and WTI were down more than 8 percent week-to-date for their biggest decline since mid-January.
Oil prices rose as much 11 percent in August, posting their best monthly return since April, on speculation that the Organization of the Petroleum Exporting Countries and other producers might agree on curbing output at Sept. 26-28 talks in Algeria. Russia is also expected to attend the IEF.
But many investors doubt OPEC will be able to agree a common position on production and prices have fallen in recent days. Many past efforts to restrict production have failed and OPEC is responsible for only around 40 percent of world output.
"There is still lots of correction potential, given the overhang of speculative long positions and exaggerated hopes for an output freeze," said Commerzbank oil analyst Carsten Fritsch.
Saudi Foreign Minister Adel al-Jubeir said on Thursday that OPEC and non-OPEC oil producers were increasingly moving towards a common position.
"I think there is a move toward a common position, toward a common effort," he told an event in Tokyo.
"If you want to have an impact then all of us have to shoulder the responsibility, and I believe over the past five or six months, I believe that there has been an increasing realization that this is a collective effort," Al-Jubeir said.
But many analysts are skeptical.
"Talk is cheap," Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, told Reuters Global Oil Forum. "Reality will set in and the market will realize that the agendas of various OPEC producers are not aligned."