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Oil dropped to the lowest in more than two months as stockpiles in developed nations have reached record levels and U.S. crude supplies keep rising.

West Texas Intermediate futures fell 2.4 percent. Oil inventories have expanded to a record of almost 3 billion barrels because of strong output from OPEC and elsewhere, the International Energy Agency said in a report on Friday. U.S. supplies climbed to 487 million last week, the most for this time of year in more than 80 years, according to U.S. government data.

"The market is being overwhelmed by rising supply," said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami. "We could test the six-year lows reached in August at any moment. We will either break through or put in a bottom."

Crude has dropped 45 percent in the past year as the Organization of Petroleum Exporting Countries pumped above its collective quota and Russian output rose to a post-Soviet high, swelling global stockpiles. Iran is pushing to regain oil sales lost to sanctions after agreeing in July to accept limits on its nuclear projects in return for market access. Oil price competition in Europe is set to intensify when Iranian crude returns, the IEA said.

WTI, Brent

WTI for December delivery dropped $1.01 to $40.74 a barrel on the New York Mercantile Exchange. It was the lowest close since Aug. 26. Futures fell 8 percent this week, the biggest decline since March. The volume of all futures traded was 46 percent above the 100-day average at 2:50 p.m.

Brent for December settlement, which expired Friday, slipped 45 cents to to $43.61 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since Aug. 26. The more-active January contract declined 72 cents to $44.47. The European benchmark crude closed at a $2.87 premium to WTI.

Futures extended declines after an industry report showed American oil drillers put rigs back to work. Rigs targeting oil in the U.S. rose by 2 to 574, after more than 100 were idled since the start of September, Baker Hughes Inc. said on its website Friday.

Total oil stockpiles in developed nations rose by 13.8 million barrels in September, a month when they typically decline, the IEA said. There are signs some fuel-storage depots in the Eastern Hemisphere have been filled to capacity, it said.

Price War

"The news from the IEA shows what a staggering amount of oil is sitting in storage," Tom Finlon, a Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. "It’s also looking like Iran will initiate a production and price war with Russia and Saudi Arabia as it tries to regain market share."

OPEC ministers will meet on Dec. 4 in Vienna to review their current policy. While some members such as Venezuela have recommended changing strategy to support prices, OPEC Secretary-General Abdalla El-Badri said Nov. 9 that supply and demand are on course to rebalance next year.

"The drop in prices is going to probably result in screams of pain coming from Caracas and Tehran," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. "Whether it results in any action to reduce production or quotas is questionable."

Resilient Production

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest oil-storage hub in the U.S., expanded by 2.24 million barrels through Nov. 6, the Energy Information Administration report showed Thursday. Output rose by 25,000 barrels a day to 9.19 million a day.

"Prices will have to stay at or below this level for some time before there will be an impact of production," Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets, said by phone.

U.S. refineries boosted operating rates by 0.8 percentage point to 89.5 percent last week, the EIA said Thursday. U.S. oil processors boosted utilization in November during four of the past five years as the annual maintenance period -- timed to a post-summer lull in fuel demand -- finishes and plants gear back up for winter.

"It’s not all doom and gloom," Mike Wittner, head of oil-market research in New York at Societe Generale AG, said by phone. "We’re going to soon see a very big increase in global crude runs as refineries return from maintenance. It’s already happening in the U.S., and both Europe and Asia will follow."

— With assistance by Grant Smith