Oil prices plunged after a record 14.4-million barrel jump in U.S. crude supply, and they could continue to fall toward $40 a barrel or lower, unless OPEC and global producers make progress on a production deal.
"In the absence of stronger statements or better weekly stats, you'll see it trending down. The problem is the market is really long at this point," said Helima Croft, head of global commodities strategy at RBC.
The U.S. government's Energy Information Administration Wednesday reported the record inventory increase in its weekly report for Oct. 28. The number is volatile, but there was also a two million barrel increase in U.S. imports to 9 million barrels, the highest since 2012.
The increase in supply comes after several weeks of draw downs and a sharp drop in inventories of 14 million barrels in early September, which was blamed on Hurricane Matthew and other storms.
But bottom line, the U.S. data show a world that is still oversupplied with oil. Production in the U.S. held steady at about 8.5 million barrels a day, and refinery utilization fell by 0.4 percent.
Crude has been weak since the prospects of an OPEC deal to limit production have faded. Over the weekend, discussions led to no agreement, though there could still be one by the time the Organization of Petroleum Exporting Countries meet at the end of the month.
"I think what it points to is how much the market is relying on the expected growth in demand in the next year. If you start to change expectations on that, and you don't get the OPEC deal hammered out, it seems like it's a really clear case of we're going to be testing that $40 mark," said Gene McGillian, manager market research at Tradition Energy.
He said if demand expectations shift and there is no OPEC deal, oil could continue to dive. "It's a pretty clear case of where we're going to be testing the $40 mark," McGillian said. He said, however, that oil's fall could prompt OPEC to make moves that would support the price, and surprise the market, as it did before.
West Texas Intermediate crude futures for December were down 3 percent at midday Wednesday, trading at $45.20 after falling briefly below $45 per barrel. Brent crude was at $46.70, down about 3 percent.
"There's obviously another leg lower. It found some support for the moment, but we're down over 10 percent from the highs," said John Kilduff of Again Capital. He said oil imports had been running below the five-year average, but the 9 million barrels a day was shockingly high, above the more normal level of about 8 million barrels.
"I think the market is in the process of calling (OPEC's) bluff, and you'll see these prices lower and lower into the meeting, forcing them or daring them into doing something," said Kilduff.
The next WTI level he is watching is $44.20, then $43.24, and if it breaks that it could go to $39.25. According to analytics firm Kensho, oil has seen a similar 10 percent decline in a short six day period 18 times since 2010.
A week after the initial decline, crude continued to move lower and ended the week negatively 72 percent of the time with an average loss of 1.7 percent, according to Kensho.
"You have a very visible double top on the chart. The high from June of $52, and the high of last month of $52," said Kilduff.
"This is the wake up call for OPEC," he said.
Croft said OPEC's ability to reach a deal is being stymied by Iraq. The country has said it produces 4.7 million barrels, between 200,000 and 400,000 more than some analysts expect, and it does not want to reduce the number. But Croft said Iraq has been counting Kurdish oil along with the oil from its own fields, leading to a double counting of the oil.
"I think Iraq will have to take a look in the mirror and say what does $40 crude do to our finances," she said.
She said Russia will be on board with a plan, and President Vladimir Putin has called his oil companies together right around the meeting.
."Getting close to $40 gives OPEC a gut check, but I think the biggest question is can Iraq temper their rhetoric," she said.
Disclosure: NBC Universal, parent of CNBC, owns a minority stake in Kensho