NEW YORK (Bloomberg) -- Oil dropped to a two-week low on speculation that a government report will show U.S. crude inventories climbed last week.

Futures fell as much as 1.9% in New York. Stockpiles probably rose the 13th time in 15 weeks, keeping them more than 130 MMbbl above the five-year average, a Bloomberg survey showed. The American Petroleum Institute will release its weekly data today while the Energy Information Administration will report on Wednesday. Supplies at Cushing, Oklahoma, the biggest U.S. storage hub, climbed to a record last month, according to the EIA.

"We’re under pressure because both the API and EIA might show Cushing supplies rose from what was already an all-time high," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "Nationwide, supplies probably rose last week, narrowing the gap on the all-time record."

Oil capped the biggest two-year loss on record in 2015 as the Organization of Petroleum Exporting Countries effectively abandoned production limits amid a global supply glut. Investors are assessing the impact of Saudi Arabia’s move to cut ties with Iran, while also watching measures by China to prevent the country’s financial-market volatility from weighing on a slowing economy.

West Texas Intermediate for February delivery fell 52 cents, or 1.4%, to $36.24/bbl at 12:07 p.m. on the New York Mercantile Exchange. Futures touched $36.05, the lowest since Dec. 22. Prices slid 30% last year.

Brent for February settlement declined 70 cents, or 1.9%, to $36.52/bbl on the London-based ICE Futures Europe exchange. The European benchmark crude traded at 28 cent premium to WTI.

Ample Stockpiles

U.S. crude stockpiles probably rose 1 MMbbl to 488.4 MMbbl last week, according to the median estimate in a Bloomberg survey. An advance above the 490.9 MMbbl reached in April would leave supplies the highest since 1930, according to weekly and monthly data from the EIA. Inventories of gasoline and distillate fuel, a category that includes diesel and heating oil, are also projected to have increased.

Inventories at Cushing, the delivery point for WTI, climbed to 63 MMbbl in the week ended Dec. 25. The hub has a working capacity of 73 MMbbl, according to the EIA.

"We only had 10 MMbbl of capacity left at Cushing in last week’s report," Yawger said. "Once we get to capacity of 73 MMbbl, I don’t know where you’ll put the stuff. Things will get ugly."

Severed Relations

On Sunday, Saudi Foreign Minister Adel al-Jubeir gave Iran’s ambassador 48 hours to leave Riyadh following an attack on the Saudi embassy in Tehran by demonstrators protesting the execution of a Shiite cleric. Bahrain also severed diplomatic relations with Iran, while the United Arab Emirates reduced its diplomatic representation and Kuwait recalled its ambassador.

While moves to isolate Iran raise the specter of deepening conflicts in the Middle East, the impact on oil prices is limited because of the global surplus, according to Macquarie Group Ltd. and FGE, an industry consultant. Citigroup Inc. described the tensions as “indeterminate” for oil markets in the near term, saying there’s less chance that the Saudis will cut crude output ahead of Iran’s return to the market following the removal of international sanctions.

"The conflict between Iran and Saudi Arabia will add to the downward pressure on oil prices as they produce as much as possible as they try to hurt each other," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Saudi Arabia won’t limit production and will seek to supply any demand from the market, Ali Al-Naimi, the country’s oil minister, said Dec. 30 on state television. The kingdom pumped 10.25 MMbopd in December, helping to keep daily OPEC output above 32 MMbbl for a seventh month, according to data compiled by Bloomberg.