Oil market dives on speculation over Saudi output hike

Global oil prices plunged on Wednesday as traders seized on speculation over possible plans for an increase in crude production and digested downbeat US housing starts data, analysts said.

Traders also took the opportunity to cash in recent gains as they awaited publication of minutes from the US Federal Reserve's latest monetary policy meeting.

In late afternoon London deals, Brent North Sea crude for delivery in April sank $1.57 to $115.95 a barrel.

New York's main contract, light sweet crude for March dived $1.97 cents to $94.69 per barrel. The March contract expires at the close.

"Crude oil fell sharply today on market chatter that Saudi Arabia was planning to increase production to meet rising demand from countries like China," said analyst Fawad Razaqzada at trading group GFT Markets.

"On top of this, we had a disappointing US housing starts figure, which gave investors the excuse to book some profit on their long positions ahead of the FOMC meeting minutes this evening."

Markets awaited the Fed's Federal Open Market Committee (FOMC) minutes for the January 29-30 meeting, due for release at 2:00 pm (1900 GMT).

Earlier on Wednesday, New York crude prices had risen on the back of easing supply concerns over an important US pipeline, analysts said.

US crude prices had advanced "on reports of increasing oil volume through the Seaway pipeline," IG Markets Singapore said in a report, referring to the pipeline serving Gulf Coast refineries.

The Seaway pipeline has recently been troubled by distribution problems but plans to pump 295,000 barrels a day between late February and the end of May, media reports said.

Seaway is seen as a critical component in addressing a glut of oil at the bottlenecked US hub in Cushing, Oklahoma.

The pipeline's capacity was recently expanded to 400,000 barrels a day from 150,000 barrels, but the operator has encountered technical problems that have limited the volume.

Later on Wednesday, analysts will pore over the American Petroleum Institute's weekly supply report for clues on the health of oil demand in the world's biggest crude consuming nation.

The industry body's statistics are due one day later than normal due to Monday's public holiday in the United States.

Similarly, on Thursday the US government's Department of Energy will publish its weekly inventory figures one day later than usual.

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