US crude drops below $59 to 5.5 year low on supply glut

US crude dropped more than $1 to a fresh 5-1/2 year low below $59 a barrel in early Asian trade on Friday, extending losses on persistent concerns over a supply glut and a bearish demand outlook.

Front-month US crude was down 87 cents at $59.08 a barrel by 2351 GMT after falling as low as $58.85, the weakest intraday level since July 2009. The contract has lost more than 10 per cent so far this week, on course for a third weekly drop.

January Brent crude slipped 56 cents to settle at $63.68 per barrel on Thursday after marking a fresh 5-1/2-year low of $63.05.

Brent has nearly halved in value since June when it traded above $115. It has lost nearly 8 per cent this week.

"Following earlier gains amid short-covering, oil quickly fell as its fundamentals - lower forecast demand and a supply surplus - remain weak," Australia and New Zealand Banking Group Ltd (ANZ) said in a note on Friday.

The ANZ note added that weak Chinese economic data could retain downward pressure on prices of commodities, referring to China's monthly activity indicators due later on Friday.

Oil prices have tanked since Wednesday after a 5 per cent drop was caused by a surprise jump in US crude and distillates inventories and remarks by Saudi Arabia's oil minister Ali al-Naimi reiterating that the kingdom will not cut output.

The market outlook is uncertain with some speculating that other OPEC members such as Algeria and Venezuela may convince the group to hold an emergency meeting early next year. Yet others doubt that Saudi Arabia would agree to production cuts even if such a meeting is held.

(Reuters)