* Fund selling hits a number of commodities
* Saudi Arabia to produce more crude in Q2-sources
* West to make "substantial and serious" offer to Iran
* API reports 3 million barrel rise in US crude stocks
* Coming Up: EIA oil stocks data 11 a.m. EST Thursday
(New throughout, adds hedge fund position data, API)
By Robert Gibbons
NEW YORK, Feb 20 Crude oil posted its biggest
daily fall so far in 2013 on Wednesday, joining a sell-off in
precious metals and copper as market rumors circulated that a
hedge fund was forced to liquidate substantial commodity
Oil entered into a steep decline just before 11 a.m. EST
( 1700 GMT), diving more than $2 per barrel over 20 minutes with
several volumes spikes. Traders cited rumors that a hedge fund
was in trouble and said the price fall looked like multiple
sell-stop orders being triggered in quick succession.
Expectations that Saudi Arabia intends to raise production
in the second quarter added pressure, while a Western diplomat
said major powers are ready to make "a substantial and serious
offer" to Iran during talks on its nuclear program next week.
"It's called long liquidation out of what had become a
crowded trade," said Tim Evans, energy futures specialist at
Citi Futures Perspective in New York.
Hedge funds and other large speculators have nearly doubled
their bets that oil prices will rise since mid-December, and
have amassed positions in Brent and U.S. crude oil futures and
options equivalent to around 440 million barrels of oil,
regulatory and exchange data shows. Reuters was unable to
confirm that any commodity fund was in trouble on
Brent crude oil had risen by $10 a barrel in the first six
weeks of 2013 to hit a nine-month peak above $119 a barrel on
Feb. 8, as strong demand from China and lower supplies from
Saudi Arabia tightened markets.
Prices have eased this week after oil industry sources said
Saudi Arabia, the world's top crude oil exporter, expects to
lift output in the second quarter, although the size of the
production boost was not specified.
On Wednesday, Brent crude for April delivery fell
$1.92 to settle at $115.60 a barrel. Prices slipped further to a
low of $115.02 in post-settlement trading.
Equity markets also fell sharply on Wednesday after minutes
from the U.S. Federal Reserve suggested the central bank may
slow or stop buying assets sooner than expected. The S&P 500
posted its worst daily percentage decline since mid-November,
losing more than 1 percent.
The U.S. crude contract for March delivery, which
expired on Wednesday, fell $2.20, to settle at $94.46 a barrel.
U.S. April crude fell $1.88 to settle at $95.22 a barrel,
having slumped as low as $94.21.
U.S. benchmark gasoline futures fell more than 6
cents to $3.0595 a gallon while heating oil fell 2.43
cents to settle at $3.1563 a gallon.
Precious metals faltered, with gold hitting a seven-month
low below $1,560 an ounce and platinum, palladium and silver
falling more than 3 percent. Copper prices fell to their lowest
in more than a month.
U.S. CRUDE SUPPLIES RISING
Supply also is rising in the United States, where the weekly
oil inventory report from industry body the American Petroleum
Institute showed crude inventories rose 3 million barrels last
That included a large 546,000 barrel increase at storage
tanks in Cushing, Oklahoma, delivery point of the U.S. benchmark
Gasoline and distillate stocks, which include diesel and
heating oil, fell by 122,000 barrels and 1.6 million barrels
Expectations that a crude supply glut in the U.S. Midwest
could persist were reinforced by news on Tuesday that the
throughput on the Seaway crude oil pipeline from Oklahoma to the
Gulf Coast will remain below its 400,000-bpd capacity through
On Thursday the U.S. Energy Information Administration
publishes its report on U.S. oil inventories at 11 a.m. EST.
The report was delayed by a day due to a holiday in the United
States on Monday.
(Additional reporting by Eileen Houlihan and Cezary Podkul in
New York, Simon Falush and Dasha Afanasieva in London and
Florence Tan in Singapore; Editing by Bob Burgdorfer and David