Oil prices fell as much 1 per cent for a sec­ond day in a row yes­ter­day as a ral­ly­ing dol­lar and a glob­al fu­el glut off­set fore­casts for low­er US crude stock­piles that typ­i­cal­ly would have been bull­ish for the mar­ket.

US crude stock­piles fell by 2.3 mil­lion bar­rels last week, trade group Amer­i­can Pe­tro­le­um In­sti­tute (API) re­port­ed. That was just above a 2.1 mil­lion-bar­rels draw fore­cast in a Reuters poll. The US gov­ern­ment's En­er­gy In­for­ma­tion Ad­min­is­tra­tion (EIA) will is­sue in­ven­to­ry da­ta on to­day.

If the EIA con­firms a draw­down, it will be the ninth straight week that US crude stock­piles have fall­en.

Even so, the mar­ket's at­ten­tion has been on an un­ex­pect­ed over­sup­ply in fu­els dur­ing the US peak sum­mer dri­ving sea­son. As stor­age on land tight­ened in re­cent weeks, fu­el prices weak­ened, prompt­ing traders to store diesel on tankers at sea for lat­er de­liv­ery.

Even if crude out­put ta­pers, some say the glut may con­tin­ue to pres­sure prices.

"Un­less crude im­ports fall to­tal­ly out of bed, there's am­ple oil in the tanks, and the head­line num­bers for crude won't be as bear­ish as the to­tal num­bers," said Kyle Coop­er, oil mar­kets con­sul­tant for New York-based bro­ker ION En­er­gy.

For dis­til­late in­ven­to­ries in­clud­ing diesel, API re­port­ed a sur­prise draw of 484,000 bar­rels. It al­so said there was an un­ex­pect­ed gaso­line build of 805,000 bar­rels.

"We ex­pect fresh lows by to­mor­row that should force out some re­cent­ly ac­quired spec­u­la­tive longs that have been en­ter­ing the mar­ket amidst the price con­sol­i­da­tion of the past eight to nine ses­sions," said Jim Rit­ter­busch of Chica­go-based oil mar­kets con­sul­tan­cy Rit­ter­busch & As­so­ciates.

Brent crude set­tled down 30 cents, or 0.6 per cent, at US$46.66 bar­rel. It fell 1.4 per cent on Mon­day.

US West Texas In­ter­me­di­ate (WTI) crude fell 59 cents, or 1.3 per cent, to set­tle at US$44.65. WTI lost 1.6 per cent in the pre­vi­ous ses­sion.

Brent's pre­mi­um to WTI LCOc1-CLc2 reached its high­est since the end of April, rais­ing the ex­port po­ten­tial for US crude.

Both bench­marks were lit­tle changed af­ter the API da­ta.

Al­so weigh­ing on oil was the US dol­lar's ral­ly to a four-month high, mak­ing green­back-de­nom­i­nat­ed oil less af­ford­able for hold­ers of the eu­ro and oth­er cur­ren­cies.

Ear­li­er in the ses­sion, a protest over wages that shut the east­ern Libyan oil ter­mi­nal of Hari­ga and forced a sus­pen­sion of 100,000 bar­rels per day of crude pro­duc­tion helped the mar­ket lim­it some loss­es.

LPG over­sup­ply

Mean­while, Reuters re­port­ed yes­ter­day that traders in the liq­ue­fied pe­tro­le­um gas (LPG) mar­ket face a "ca­reer-ru­in­ing" glut that has led to mil­lions of dol­lars in loss­es as Chi­nese buy­ers, far from com­ing to the res­cue, are in a stand-off with oil com­pa­nies to can­cel deals.

LPG, a his­tor­i­cal­ly niche and dis­lo­cat­ed mar­ket, has bal­looned with the ad­vent of US ex­ports due to the shale boom.

The Unit­ed States went from an im­porter to the largest sin­gle ex­porter of propane in just a few years, ri­val­ing the Mid­dle East Gulf pro­duc­ers.

"I can't re­mem­ber it be­ing this bad. There was mas­sive new pro­duc­tion out of the US and peo­ple hoped the Chi­nese mar­ket might ab­sorb it," one LPG trad­er said.

"There was strong buy­ing in the first four months of the year with low oil prices but that stopped and the mar­ket is now a few mil­lion tonnes long."

A glut was ex­pect­ed, but its sever­i­ty caught most by sur­prise and will like­ly serve as a warn­ing to those trad­ing liq­ue­fied nat­ur­al gas, which is in­creas­ing­ly over­sup­plied.

LPG is the col­lec­tive term for propane and bu­tane, which T&T's Phoenix Park Gas Proces­sors ex­ports to re­gion­al and in­ter­na­tion­al mar­kets. The Unit­ed States ex­ports most­ly propane used for heat­ing and in the petro­chem­i­cal in­dus­try to make propy­lene, a base for plas­tics man­u­fac­tur­ing.

Traders have been left scram­bling to mit­i­gate loss­es as Chi­na has failed to be the dri­ver of de­mand.

At least five com­pa­nies–Vi­tol, Gun­vor, Shell, BP and EDF Trad­ing–can­celled Ju­ly-load­ing car­goes out of the two ma­jor Texas LPG ter­mi­nals, pre­fer­ring to pay penal­ties of up to US$1 mil­lion per car­go.

Many LPG traders signed up for mul­ti-year con­tracts but pre­mi­ums to the US bench­mark on a spot ba­sis sunk by about US$40 a tonne this year, un­der­cut­ting the term lifters.

The con­tracts were al­so signed when the US bench­mark was around a $150 to US$200-per-tonne dis­count to the Eu­ro­pean bench­mark and Sau­di Ara­bia's of­fi­cial sell­ing price. But spreads shrunk dra­mat­i­cal­ly in 2016, mak­ing US ex­ports sud­den­ly un­ap­peal­ing to Asia.

Chi­nese end-users are now can­celling or rene­go­ti­at­ing their term con­tracts, tak­ing ad­van­tage of prod­uct over­hangs in the Mid­dle East and a cheap­er al­ter­na­tive feed­stock, naph­tha.

Asian de­mand slowed ear­li­er this year on weak propy­lene mar­gins, which led to run cuts and de­layed new plant start-ups. Af­ter hit­ting a trough, the mar­ket is ex­pect­ed to re­bal­ance by the year-end though sup­ply will con­tin­ue to out­pace de­mand.

"Non-as­so­ci­at­ed gas out­put means there will be a steady rise in nat­ur­al gas liq­uids out­put de­spite the oil price dol­drums. This trend will con­tin­ue in the medi­um term," Al Troner, head of Asia Pa­cif­ic En­er­gy Con­sult­ing in Hous­ton, said.

Sin­ga­pore-based SK Chem­i­cal Trad­ing re­cent­ly can­celed con­tracts with Naftomar, Pe­tre­dec and Shell af­ter its end-user Zhe­jiang Shaox­ing Sanyuan Petro­chem­i­cal Co re­neged on its or­ders. The com­pa­nies did not re­spond to re­quests for com­ment.

One trad­er said the price rout was ru­in­ing ca­reers and had "gun­fight at the OK Cor­ral-type im­pli­ca­tions", re­fer­ring to one of the most fa­mous shootouts from the days of the Amer­i­can Wild West.