Oil prices extend losses on US oil inventory, manufacturing data

Oil prices fell as much as over 2 per cent in early Asian trade on Wednesday, as a stronger than expected build in US crude oil stocks and weaker US manufacturing data fuelled a rout in prices that started in the previous session.

Brent and US crude finished around 8 per cent lower on Tuesday to end a 25-per cent three-session surge, the largest three-day gain since 1990.

That came after oil prices dropped to their lowest level in 6-1/2 years last week.

This roller coaster volatility could continue especially if there are similar wild swings in the equity markets, said Ric Spooner, chief market analyst at Sydney's CMC Markets.

"Any change in sentiment tends to be amplified. Any change in direction in the oil markets has the potential to be risk driven by what's going on in the equity markets," he said.

US stocks fell nearly 3 per cent on Wall Street on Tuesday, with all three major US equity indexes in negative territory for the year so far.

Oil prices retreated after US crude stocks surged by 7.6 million barrels to 456.9 million in the week to August 28, data from industry group the American Petroleum Institute showed on Tuesday. Analysts in a Reuters poll expected just a 32,000 barrel gain.

Official inventory data will be released by the US Energy Information Administration later on Wednesday.

Weaker than expected US manufacturing data from the Institute for Supply Management (ISM), which showed growth in August slowed to its lowest level since May 2013, also weighed on oil prices in the Asia timezone.

"Upcoming US data, including oil stocks, factory orders and employment figures, will be important in giving oil markets direction", Spooner said.

Brent crude LCOc1 for October delivery had dropped 64 cents to $48.90 a barrel, or 1.3 per cent, as of 06:05 am after falling $4.59, or 8.48 per cent, in the previous session.

The benchmark fell to $48.48 a barrel immediately after trading started on Wednesday.

US crude CLc1 for October delivery declined 79 cents, or 1.7 per cent, to $44.62 a barrel after ending down $3.79, or 7.7 per cent, in the previous session. It dropped to $43.86 a barrel shortly after the market opened.

Oil prices are expected to end the week down, but should be above last week's lows, Spooner said.

Crude prices have fallen too far, too fast and should recover gradually over the next year, with Brent averaging $62.30 a barrel in 2016 and US crude $57 a barrel, a Reuters poll of analysts showed on Tuesday.