Investing.com -- Crude futures fell to fresh 12-year lows on Wednesday before paring some of their losses shortly before the close of trading, amid mounting concerns of a widening gulf between global supply and demand levels.
On the New York Mercantile Exchange, WTI crude for March delivery traded in a broad range between $27.57 and $29.75 a barrel, before settling at $28.37, down 1.22 or 4.08% on the session. Since New Year's Eve, U.S. crude has plunged more than 20% extending massive losses from 2015 when Texas light, sweet futures flirted with multi-year lows throughout the year.
Losses in the February contract were even sharper, plummeting as much as 7% to an intraday low of $26.30 on its final day of trading before expiring. U.S. crude rebounded slightly late in the session, as investors covered their short positions from the massive sell-off.
On the Intercontinental Exchange (ICE), brent crude for March delivery wavered between $27.11 and $28.84 a barrel, before closing at $27.93, down 0.83 or 2.86% on the day. Meanwhile, the spread between the U.S. domestic and international benchmarks stood at 0.44, below Tuesday's level of 0.78 at the close of trading.
Investors continued to digest bearish comments from the International Energy Agency (IEA) a day earlier when the Paris-based organization warned that oil prices worldwide "could drown in oversupply" if current conditions persist. In its monthly oil report released on Tuesday, the IEA said global markets could face an estimated supply excess of 1.5 million barrels per day if demand continues to limp behind at its current pace. Barring unforeseen changes, global supply is expected to outstrip demand by more than 1 million bpd for the third straight year.
Crude prices remain near decade lows in the wake of Saturday's Implementation Day announcement that will enable Iran to ramp up exports by approximately 500,000 bpd over the next several weeks. The lifting of multi-year sanctions against the Persian Gulf state is expected to push crude prices down even lower, as Iran plans to increase exports to as much as 3.4 million bpd once its return to global markets is completed.
Energy traders have closely observed the growing rift between Iran and Saudi Arabia since the oil powers severed diplomatic ties following the execution of a Shiite cleric on Jan. 2. On Wednesday, the Saudi Arabian Monetary Agency (SAMA) warned commercial banks against betting on the Riyal's depreciation, after devaluations of the Saudi currency reached their highest level in nearly two decades. Saudi Arabia is forecasting a budget deficit of $87 billion this year, amid plummeting oil prices.
Investors await the release of the American Petroleum Institute's weekly inventory report on Tuesday after the bell for further indications on supply levels on U.S. domestic energy markets. Separately, Thursday's government report from the Energy Department could show that U.S. crude stockpiles increased by 3.0 million barrels for the week ending on Jan. 15. The report is being released one day later than usual this week due to Monday's Martin Luther King Day holiday.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.30% to an intraday low of 98.69. The index remains near 12-month highs from December, when it eclipsed 100.00. Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.