Oil prices dropped by more than 1 per cent on Tuesday, extending falls from the previous session as global financial markets tumbled lower in the wake of one of the biggest intra-day falls ever registered on Wall Street.

Brent crude futures were at $66.91 per barrel at 0530 GMT, down 71 cents, or 1.1 percent, from the previous close. That was more than $4 below their high-point for 2018, hit last month.

U.S. West Texas Intermediate (WTI) crude futures were at $63.46 a barrel, down 69 cents, or 1.1 percent, from their last settlement and more than $3 off their 2018 high.

“The fall (in crude futures) is mainly attributable to a global sell off in equities,” said Sukrit Vijayakar, director at consultancy Trifecta Energy.

“People ran to the U.S. dollar as a safe haven currency. Therefore the dollar strengthens. This makes commodities more expensive to buy, hence oil futures get sold off,” he added.
Financial markets went into a tailspin on Monday after a sharp rise in U.S. bond yields that raised alarms over rising inflation and potentially higher interest rates.

U.S. S&P 500 futures tumbled 3 percent in Asian trade on Tuesday, extending Monday’s sell-off. [nL4N1PW28H]

“Suddenly, inflation has become one of the most-talked about issues in markets,” U.S. bank J.P. Morgan said in a note to clients.

The correction in oil is also being driven by fundamentals, traders said.

Despite the Organization of the Petroleum Exporting Countries (OPEC) and Russia cutting production in order to tighten the market, crude remains in ample supply.

That is largely due to soaring US shale oil production, which has jumped by almost 18 percent since mid-2016 to 10 million barrels per day (bpd), surpassing top exporter Saudi Arabia.

Only Russia produces more, averaging 10.98 million bpd in 2017.

And U.S. oil output will likely rise further.

The amount of rigs drilling for oil rose to 765 by late January, more than double the 316 that were in operation during 2016’s production lull.