Oil prices downgraded to their lowest in more than two years as U.S. crude posts its biggest daily decline since 2012.

World oil prices tumbled to their lowest in more than two years on Tuesday, with U.S. crude posting its biggest daily decline since 2012 as expiring October gasoline futures tumbled 4.5 percent and the U.S. dollar rose.

New York RBOB gasoline for October delivery, which expires at the end of the day, reversed more than half of its gains from a two-week rally that traders had attributed to a short squeeze on local supplies.

That selloff contributed to a more than $3 slump in U.S. crude and deepened losses in European benchmark Brent, both of which tumbled abruptly at midday. Brent was set for its biggest quarterly fall in two years, down 16 percent.

Brent for November delivery fell $2.82 to $94.38 a barrel by 12:28 p.m. EDT (1628 GMT).

U.S. crude dropped $3.26 to $91.31 a barrel. During the session, Brent’s premium over U.S. oil dipped to the narrowest in 13 months, touching $2.52 a barrel. The premium later grew back to more than $3 a barrel.

Many brokers said oil prices were also pressured by the U.S. dollar’s surge to a four-year high against a basket of currencies, and a two-year high against the euro.

“The dollar strength is pressuring oil across the board,” said Andy Lebow, senior vice president at Jefferies Bache in New York.

Oil traders said other factors that may have contributed to the decline included end-quarter position squaring by funds or further possible oil hedging from Mexico.

“We’re at the end of a quarter here, so we’re seeing some action going on with that,” said Tariq Zahir, analyst at Tyche Capital Advisors in New York.

They also cited Reuters’ OPEC survey showing that supply from the cartel in September jumped to its highest in almost two years, due to further recovery in Libya and higher output from Saudi Arabia and other Gulf producers.

With fundamental factors pointing toward ample supply and slack demand in the near-term, firm U.S. and Chinese economic data did little to support prices.

Activity in China’s vast factory sector showed signs of steadying in September as export orders climbed, a private survey showed on Tuesday. This eased fears of a hard landing but pointed to a still sluggish economy.

U.S. crude oil and distillate inventories likely rose slightly in the week ended Sept. 26, according to forecasts ahead of weekly American Petroleum Institute data due later on Tuesday. Gasoline inventories probably fell.

 
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