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US crude settles down 2% at $43.03 a barrel, dragged lower by glut worry

Iranian workers walk at a unit of South Pars Gas field in Asalouyeh Seaport, north of Persian Gulf, Iran November 19, 2015.
Raheb Homavandi | TIMA

Crude oil prices fell 2 percent on Friday to multi-week lows as swelling Iranian exports reinforced fears of a global glut, while gasoline rallied on refinery and pipeline outages.

Falling U.S. equities and a rising dollar also weighed on crude futures and other industrial commodities denominated in the greenback.

Gasoline surged 3 percent on news of an extended outage on Colonial Pipeline's main gasoline line and in a key unit of BP's Whiting, Indiana refinery. The profit for turning crude into gasoline hit three-month highs and pump prices for the fuel rose as well.

U.S. West Texas Intermediate futures settled down 88 cents, or 2 percent, at $43.03 a barrel, after falling to $42.74, the lowest intraday level since Aug. 11. WTI slipped about 6.2 percent this week.

Benchmark Brent crude futures traded down 72 cents, or 1.6 percent, at $45.87 a barrel at 2:37 p.m. ET (1837 GMT). The contract earlier fell as low as $45.48 and is down nearly 5 percent on the week.

Crude sinks to 2-week low

"Crude futures are taking on an increasingly bearish appearance," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates. For WTI, "this can potentially expedite our expected trip south to the $39 area," he said.

Oil slumped after a source familiar with Iran's tanker loading schedules said the third-biggest OPEC producer raised crude exports to more than 2 million barrels per day (bpd) in August, nearing pre-sanctions levels.

Much of Iran's fresh output has found a home in Asia and Europe. India's daily oil imports from Iran rose to the highest in at least 15 years in August, according to trade sources and shipping data. Austria's OMV said it had taken delivery of an Iranian crude oil spot delivery in Italy, its first cargo from Iran since 2012.

Iran and OPEC kingpin Saudi Arabia have been raising exports despite the approaching Sept 26-28 meeting in Algeria, where the Organization of the Petroleum Exporting Countries and other major producers are to discuss an oil production freeze. Most market participants are skeptical a deal will be reached.

There are also signs of a return of output from Nigeria and Libya, two countries whose crude exports have been hampered by conflict and unrest.

Libya is resuming oil exports from some of its main ports and has lifted related force majeure contractual clauses, the National Oil Corporation (NOC) said. In Nigeria, ExxonMobil was making preparations to load a cargo of Qua Iboe crude at the end of September, trading sources said, its first since it imposed force majeure in July.

OPEC members aren't comfortable with oil prices: Argus

The rally in gasoline accelerated after news that BP Plc plans to shut for up to 10 days the large crude distillation unit at the 413,500 bpd refinery in Whiting, Indiana. That would add to closure of the refinery's gasoline-producing fluidic catalytic cracking unit.

Also on Friday, Baker Hughes reported U.S. drillers increased the number of rigs operating in U.S. fields by 2 in the previous week to a total of 416. At this time last year, drillers had 644 rigs in U.S. fields. The rig count has risen in 11 of the last 12 weeks.

The level of U.S. production is seen as key to market balancing as since 2010 the U.S. has witnessed more growth in daily output than any other major producer thanks to the boom in shale oil production but is never likely to join any group effort to control supplies.

UBS analysts said in their latest oil market report they expected Brent to average $60 a barrel next year and $70 in 2018.

"In the absence of a clear price anchor we believe that while oversupply persists crude will likely trade in a wide range between cash costs of current supply at $30/bbl and lower and the long-run marginal cost at $60-80/bbl," they wrote.