Investing.com -- U.S. crude futures erased gains from earlier in the session on Tuesday to drop to fresh 12-year lows, ahead of the release of the American Petroleum Institute's weekly inventory report.
On the New York Mercantile Exchange, WTI crude for February delivery traded in a broad range between $29.96 and $32.19 a barrel before settling at 30.41, down 1.00 or 3.17% on the session. With the sharp losses, U.S. crude futures fell below $30 a barrel for the first time since December, 2003. The front month contract for U.S. crude has slumped more than 10% since the first of the year, amid widespread economic concerns in China and heightened geopolitical instability in the Middle East.
On the Intercontinental Exchange (ICE), brent crude for March delivery wavered between $30.55 and $32.67 a barrel, before settling at 30.91, down 0.97 or 3.04% on the day. Much like its U.S. counterpart, North Sea brent has tumbled more than $7 a barrel in 2016, extending dramatic losses from the previous year. A number of analysts worry that the downturn will persist, as demand in China remains soft in the face of slowing economic growth.
Investors await the release of the API's weekly stockpile report after the close of trading on Tuesday for further indications on domestic supply levels in the U.S. Meanwhile, Wednesday's government report from the Department of Energy could show that U.S. crude inventories rose by 2.5 million barrels for the week ending on January 8. A week earlier, crude stockpiles fell by 5.1 million barrels, significantly below forecasts for a build of 500,000 barrels. While a considerable draw has generally provided upside pressure for crude prices in recent months, inventories are typically drawn down in the final weeks of the year as companies look to avoid year-end tax burdens.
The latest oil sell-off has led to mounting concerns that crude prices could fall even further in the short-term future. On Monday, analysts at several prominent firms lowered their yearly forecasts for oil prices in 2016, while Standard Chartered (L:STAN) predicted that crude futures could fall as low as $10 a barrel. Analysts from Morgan Stanley (N:MS) also warned that stronger devaluations in the yuan could prevent crude prices from rebounding.
It came as speculators increased short positions of WTI crude by almost 10% from the previous week on January 5 to a record high of 182,562, according to data compiled by the U.S. Commodity Futures Trading Commission. At the same time, investors cut their long positions or bets that prices will spike to fewer than 50,000, the data showed.
Elsewhere, investors digested news of a suicide bombing in Istanbul on Tuesday morning, of which Turkey officials linked to a group represented by the Islamic State. At least eight German citizens were killed in the blast in a popular tourist area near the Blue Mosque, a Turkish government official told CNN. Energy prices are sensitive to reports of increased geopolitical tensions near the Middle East, home to roughly 30% of the world's daily crude production.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.3% to an intraday high of 99.34. 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.