West Texas Intermediate fell 2.1 percent while Brent slipped 2.6 percent, reversing early gains spurred by an escalating conflict in Libya. Fires have been extinguished at three of six tanks at Es Sider, Libya's largest oil port, which were set ablaze after an attack by militants, said National Oil Corp. spokesman Mohamed Elharari.
Crude also fell as the dollar climbed to a two-year high against the euro, reducing the appeal of raw materials as a store of value.
Futures plunged 46 percent this year, set for the biggest annual drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share in response to the highest U.S. output in three decades. Trading was below average amid Christmas and New Year holidays.
"We're looking at a significant supply-demand surplus through the first half of 2015," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "The problems in Libya and any reduction in the growth of U.S. production will only help limit the surplus, but it's not going away anytime soon."
WTI Futures
WTI for February delivery fell $1.12 to close at $53.61 a barrel on the New York Mercantile Exchange. It was the lowest settlement since May 1, 2009. The volume of all futures traded was 32 percent below the 100-day average at 2:58 p.m.
Brent for February settlement slipped $1.57 to end the session at $57.88 a barrel on the London-based ICE Futures Europe exchange. It's the lowest close since May 15, 2009. Volume was 45 percent below the 100-day average. The North Sea oil closed at $4.27 premium to WTI, down from $4.72 on Dec. 26.
Libyan crude production has slumped since a civil war that began in 2011 when Muammar Qaddafi was overthrown after a 42- year rule. The country pumped 580,000 barrels a day in November, down from about 1.59 million at the end of 2010, Bloomberg figures show.
The tank fires started on Dec. 25 after the Petroleum Facilities Guard gave Islamist militias an ultimatum before air strikes and the rebels fought back. Es Sider has a storage capacity of 6.2 million barrels, the National Oil Corp. said. Libya's third-largest port of Ras Lanuf was also halted this month by fighting. The country pumped 352,000 barrels a day on Dec. 25, Elharari said.
Global Balance
"The loss of a couple hundred thousand barrels from Libya will have a minimal impact on the global supply balance," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. "There's about 2 million barrels a day of excess production right now, so this will just tighten things a little."
Prices tumbled on Dec. 24 after an Energy Information Administration report showed that U.S. crude and fuel inventories surged the prior week. The EIA, the Energy Department's statistical arm, is projected to report on Dec. 31 that supplies of crude, gasoline and distillate fuel, a category that includes diesel and heating oil, gained last week, according to a Bloomberg survey of analysts.
