That puts OPEC and Saudi Arabia on a collision course with US President Donald Trump, who publicly supports low oil prices and who has called on OPEC not to cut production. Signals of impending supply cuts "helped stock the bullish spirits back in here for the first time in a while".
US crude oil output from its seven major shale basins is expected to hit a record of 7.94 million barrels per day (bpd) in December, the US Department of Energy's Energy Information Administration (EIA) said on Tuesday.
The IEA said in its monthly report that October output rose by 2.6 million barrels a day to 100.7 million barrels as producers heeded warnings that looming US sanctions could mean a loss of Iranian oil to the market and thus lead to higher prices.
Futures for West Texas Intermediate fell 7.1 percent to $55.69 a barrel on the New York Mercantile Exchange. Saudi Arabia is the largest crude oil producer within OPEC, although the USA and Russian Federation now produce more oil than the kingdom.
With the United States now the world's top oil producer ahead of Saudi Arabia and Russian Federation, there are indications that traders will keep selling crude at lower prices as a result of oversupply. The global benchmark crude traded at a US$9.68 premium to WTI for the same month. Russian oil minister Alexander Novak said his country was open to cuts, at a meeting of oil producers in Abu Dhabi. The kingdom will reduce shipments by about half that amount next month. The recovery in oil prices that followed the 2017 OPEC-led supply cut is still prompting more growth in rival production. The industry-funded American Petroleum Institute will publish its weekly tally later Wednesday.
"Crude oil futures succumbed to overwhelmingly bearish pressure amidst ... weaker market fundamentals", said Benjamin Lu, analyst at brokerage Phillip Futures in Singapore. "With a build, I think it's reasonable that at least this afternoon the market came off a little bit".
Inventories of oil in OECD countries rose by 12.1 million barrels in September to 2.875 billion barrels, the IEA said, adding that for the third quarter as a whole, stocks rose 58.1 million barrels, or at a rate of 630,000 bpd, the biggest increase since 2015. OPEC Secretary-General Mohammad Barkindo said Wednesday that OPEC and its partners are committed to sustaining "this balance that we fought very hard in the last two years to restore".
The slump in spot prices has turned the entire forward curve for crude oil upside down.