Oil extended losses on Tuesday to touch fresh 5-1/2-year lows, following a 5 per cent plunge in the previous session as a slew of bearish factors added to supply woes.

Worries about surplus oil supplies were fuelled by data showing output in Russia hit a post-Soviet-era high in 2014 and exports from Iraq, OPEC’s second-largest producer, were the highest since 1980. Jitters over political uncertainty in Greece drove investors out of risk assets globally to safe-haven bonds.

“It's building on the recent bearish supply/demand outlook of oil, led originally by the OPEC meeting,’’ said Mark Keenan, who heads Asia commodities research at Societe Generale.

Brent, US crude

Brent crude touched a fresh low since May 2009 at $52.28 a barrel on Tuesday, although it recovered slightly to $52.83 by 0730 GMT, down 28 cents. US crude was at $49.63, down 41 cents, after earlier dropping to a new low since April 2009 at $49.32.

A slew of factors had combined to push prices lower, Keenan said, pointing to the concerns about Greece, high output from Russia, Iraq and the United States and a stronger dollar.

US crude oil stockpiles

US commercial crude oil and products stockpiles were forecast to have risen in the week ending January 2, a preliminary Reuters survey showed on Monday, and this could weigh on prices further.

A rise in the dollar index for the sixth straight month in December has made dollar-denominated oil more expensive for holders of other currencies, depressing prices.

Economists' predictions

Some economists expect cheaper oil to boost consumers’ purchasing power and buoy the global economy, but the 50 per cent plunge in oil prices since June has also raised deflationary fears.

“This is great news for motorists, but it presents a headache for policy makers, with the Fed keen to get their policy settings back to something more normal, and Europe keen to avoid a deflationary spiral,’’ ANZ analysts said in a note.

A rebalancing of portfolios of major commodity indices that starts on Thursday may widen the spread between Brent and West Texas Intermediate, according to Societe Generale.

Up to $3 billion of Brent contracts will be bought versus $1.14 billion of WTI contracts, the bank estimated. Although the volumes are not significant, it could tilt sentiment towards a stronger Brent, Keenan said.

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