Oil prices struck a new 2017 low on Thursday as mixed U.S. stockpile data compounded bearishness that has permeated the energy complex in recent weeks.
U.S. West Texas Intermediate crude fell below $46 and international benchmark Brent breached $49, both sinking to the lowest level since Nov. 30, the day the Organization of the Petroleum Exporting Countries agreed to cut output.
Analysts said WTI could eventually decline to $42 now that it broke this key level.
U.S. West Texas Intermediate 3-day performance
The move lower came after the U.S. Energy Information Administration reported a much smaller-than-expected drop in crude oil inventories and another week of soft gasoline demand.
"That $47 level ... is huge," he said.
On Tuesday, oil breached the previous week's low of $48.20, sparking a round of high-volume, late-afternoon selling.
There is some support around the $45 level, Kilduff said. But if U.S. crude settles below $47 a barrel on Thursday, he believes the contract could plunge to the November lows of $42 a barrel.
Just before noon, U.S. crude broke through a major support zone at $45.90 flagged by Seaport Global Securities earlier in the day. The next critical level is $42.70, the firm said in a morning research note.
Roberto Friedlander, head of energy trading at Seaport Global Securities, pointed to "terrible" demand for refined products, uncertainty around future oil consumption and "what seems like an endless supply of oil."
Both Kilduff and Friedlander said oil futures appeared to be getting caught up in a broader sell-off in commodities on concerns about Chinese demand.
Thursday's sell-off appeared to validate the bearish views of technical traders who analyze charts, said Tom Kloza, global head of energy analysis at Oil Price Information Service.
"Chartists have been the smartest guys in the room, and the smartest guys in the room, their charts
Investors are looking forward to OPEC's May 25 meeting, where the exporter group will decide whether to extend its six-month production cut through the second half of 2017. OPEC and other exporters agreed to reduce output by 1.8 million barrels a day late last year.
While OPEC compliance has been good and many expect the group to extend its share of the cuts, global inventories have so far remained stubbornly high, including in the United States.
A Reuters survey indicating that compliance with the output cut deal fell among some OPEC members in April has weighed on oil prices. News of growing output from OPEC member Libya, which is exempt from the deal, also hurt sentiment.