Oil prices slid to a fresh six and a half year low in Asia Thursday, approaching the key $40 a barrel level after a surprise rise in US inventories added to concerns of a supply glut.
US benchmark West Texas Intermediate (WTI) for delivery in September, which expires Thursday, dipped 21 cents to $40.59 in afternoon trade after falling sharply in New York to its lowest level since March 2009.
Brent crude for October dropped 28 cents to $46.88 a barrel.
"US stockpiles unexpectedly expanded when the market was looking at a contraction, which heightened the global oversupply concerns," said Bernard Aw, a market strategist at IG Markets in Singapore.
"This added pressure to crude prices, and we see WTI drop below $41, heading towards the key $40 level. We could see more downsides, given that the current conditions remain unfavourable to oil."
The US Department of Energy on Wednesday said oil stockpiles rose 2.6 million barrels in the week ending August 14, and reported a 300,000 barrel rise at the closely watched Cushing, Oklahoma trading hub.
The surprise jump in inventories at a time when they normally fall added to concerns of a global surplus, particularly as signs emerge that demand is faltering in top energy importer China.
US banking giant Citigroup said WTI could fall to $32 a barrel, a level not seen since the throes of the financial crisis, pressured by excess supplies.
"Oil balances point to further oversupply throughout 2015 begging the question how low can oil go," it said in a market commentary, adding that hitting the 2008 low of $32.40 a barrel "is a conceivable reality".
But Daniel Ang, an investment analyst with Phillip Futures in Singapore, said he expects WTI to be supported at $40 a barrel in Thursday's trading session.
"Technically, we are still seeing a very bearish momentum, however for prices to break below $40 is going to be an arduous task," he said.
"We see $40 for WTI to be a strong psychological support. Thus, we would unlikely think that this would break during Asian hours (Thursday)."