Oil tanker off coast of Saipan. Credit: Ben P L.

Oil prices crashed to their lowest levels in two weeks after global stock markets plunged and data showed that US crude inventories are increasing beyond expectations.

Brent crude LCOc1 dropped $1.74 per barrel earlier in the day to register a two-week low of $81.35, before recovering marginally to reach $81.70, Reuters reported. The contract fell 2.2% from the previous day.

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US light crude CLc1 fell $1.37 to $71.80 a barrel before recovering to about $72.05.

London brokerage PVM Oil technical chart analyst Robin Bieber was quoted by the news agency as saying: “The up-trend is over for the moment, and a new direction is settling in. The market looks like heading lower, with valid targets south.”

Asian share markets crashed to a 19-month low after Wall Street suffered its worst losses in eight months. The Wall Street drops resulted in broader risk aversion, and an increase in market volatility gauges.

"The clear risk-off mode that we are seeing across all markets is also hitting oil."

CMC Markets chief market strategist Michael McCarthy told Reuters: “The clear risk-off mode that we are seeing across all markets is also hitting oil.”

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According to data released by industry body the American Petroleum Institute (API), US crude inventories soared more than expected for the week ending 5 October, climbing 9.7 million barrels in the week to 410.7 million.

This was against analyst expectations for an increase of 2.6 million barrels.

Producers in the Gulf of Mexico slashed daily oil production by nearly 42% owing to Hurricane Michael, according to offshore regulator the Bureau of Safety and Environmental Enforcement. The cuts translate to around 718,877bpd of oil output.

However, Ritterbusch and Associates president Jim Ritterbusch noted that the production knocked out by the Michael accounts for a relatively small portion of total US output.

In its monthly forecast, the Energy Information Administration (EIA) projected that US oil production is set to increase by 1.39 million bpd to reach a record 10.74 million bpd.