Oil prices dipped on Wednesday, reversing early gains, as weak economic data from China weighed on commodities and added to the woes of an oversupplied market that has seen prices more than halve since June 2014.

Crude edged up in early Asian trading after industry group the American Petroleum Institute reported that US crude stockpiles fell 3.7 million barrels last week, with stocks at the Cushing, Oklahoma, delivery point for US crude futures alone down almost 500,000 barrels. [API/S]

But the rise did not last as more weak data from China and tumbling commodities like coal and copper weighed on oil.

Activity in China's factory sector unexpectedly shrank to a 6-1/2-year low in September, a private survey showed, raising fears of a sharper slowdown in the world's second-largest economy that could spell more turmoil for financial markets.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) fell to 47.0 in September, marking seven straight months of declines and the worst reading since March 2009 as well as below market expectations of 47.5. Levels below 50 signify a contraction.

As a result, crude futures turned negative, with US West Texas Intermediate (WTI) crude CLc1 trading at $46.18 per barrel at 2238 EDT, down 18 cents from their last settlement, and globally traded Brent futures LCOc1 down 26 cents at $48.82 per barrel.

"Oil, like other commodities, is in the middle of a glut. Most say there are more than 2.5 million barrels in the market every day that nobody needs," one crude trader said.

Pressure could also build from other commodities, which have tumbled on the back of China's economic slowdown.

Benchmark copper CMCU3 on the London Metal Exchange closed down 3.6 per cent on Tuesday, its biggest one-day loss since July 7, while key thermal coal futures TRAPI2Yc1 closed at $50 a tonne, its lowest since 2003. – Reuters