London (Platts)--20Feb2013/444 pm EST/2144 GMT

Oil futures failed to reverse a heavy plunge in late morning US trade Wednesday, settling sharply lower as bearish market sentiment and a stronger dollar weighed on commodities markets.

NYMEX March crude expired $2.20/b lower than Tuesday's settle at $94.46/b, after rebounding marginally from a hefty fall in late-morning trade that saw the front-month contract sink as low as $93.92/b. The April contract also closed US trading lower, sliding $1.88/b to settle at $95.22/b. April had earlier hit a low of $94.21/b.

ICE April Brent closed trading down $1.92/b at $115.60/b, after sliding as far as $115.05/b at 11:07 a.m., its lowest level since February 5.

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Both contracts fell sharply around 11:00 a.m. EST (1600 GMT) as a surge in trading volume prompted markets to tick sharply downward. The March NYMEX crude contract fell 70 cents between 11:00 a.m. and 11:02 a.m. EST, before hitting its session low of $93.92/b at 11:07 a.m. EST.

Front-month Brent plunged more than $1.70/b in 10 minutes of trading, as trading volume on both crude contracts shot up sharply.

Analysts said that the drop was led by a sharp move in NYMEX crude, which carried over in to the ICE Brent contract and then further in to the product markets.

"More than 40 million barrels of April WTI crude oil was traded during the ten minute period of carnage that took the price down from $96/b to $94.21/b," Ole Hansen, head of Commodity Strategy at Saxo Bank, said in a note.

Analysts suggested that the sharp move downward was due to some combination of position liquidation and technical selloff, although evidence of either remained thin as trading continued in to the afternoon and volume dropped off. While both crude contracts bounced back slightly in the afternoon trading session, sources said that overall sentiment generally bearish after mixed economic data out of Europe and the US.

"There's also a general realization that the European and US economies are not in great shape," WTRG Economics energy economist Jim Williams said. "From supply and demand balance, we're okay ... Saudi Arabia is looking to increase supply, we have general economic malaise, that is plenty to justify lower oil prices."

Analysts said that talk emerged during trading Wednesday that Saudi Arabia may increase its oil production in the second quarter on higher demand from emerging market economies. Exports from the country hit a 15-month low of 7.062 million b/d in December.

"Gold and silver were hit before oil, so some psychology could be carrying over from there," Phil Flynn, commodities analyst at Price Futures Group, said. "The question is this the end of the selling, or is there going to be more? This type of a sell-off is either the beginning of a major sell-off or a correction. On oil, I think we'll continue to sell off a bit."

Gold futures settled 1.63% lower, while the US dollar index was up 0.70% at 81.035 at the 2:30 p.m. (1930 GMT) NYMEX settle.

Product futures proved marginally more resilient in the face of the sharp selloff in the crude complex Wednesday, though sentiment in the NYMEX RBOB contract remained bearish in the wake of recent five-month highs.

"March RBOB gasoline looks like the weakest segment of the petroleum complex, with possible long liquidation of crack spread positions versus the expiring March WTI crude oil futures a part of the flow," Tim Evans, analyst at Citi Futures Perspective said in a note."

NYMEX March RBOB settled 6.17 cents lower at $3.0595/gal, after hitting a six-day low of $3.0304/gal in the afternoon session. Analysts polled by Platts Tuesday anticipate a 1.4 million barrel decline in US gasoline stocks over the week ended February 15.

The US American Petroleum Institute is scheduled to release its weekly data on US fuel inventories at 4:30 p.m. EST (2130 GMT) Wednesday, with the Energy Information Administration numbers from the US Department of Energy scheduled for Thursday morning. Both releases were delayed one day due to the Presidents Day holiday.

NYMEX March heating oil settled 2.43 cents lower at $3.1563/gal, while the ICE March gasoil contract was down $5.75/mt at $994/mt at the NYMEX settle.

--Paula VanLaningham, paula_vanlaningham@platts.com
--Edited by Katharine Fraser, katharine_fraser@platts.com

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