Oil prices edged higher on Thursday, but swelling U.S. crude stockpiles limited the rebound from a one-week low after the International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other producers took effect.
The IEA said that while it was “far too soon” to gauge OPEC members’ compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.
U.S. West Texas Intermediate crude oil settled up 29 cents at $51.37 per barrel, having dropped to a one-week low on Wednesday at $50.91 a barrel.
International benchmark Brent crude was up 34 cents at $54.26 a barrel by 2:33 p.m. ET (1933 GMT), after closing down 2.8 percent in the previous session.
A strong U.S. dollar limited oil’s advance.
Prices tumbled to session lows after U.S. Energy Information Administration (EIA) data showed crude inventories rose unexpectedly last week as refineries sharply cut production.
U.S. commercial crude inventories rose by 2.3 million barrels in the week through Jan. 13 to 485.5 million barrels, well above the expectations of a 342,000-barrel decline.
The data also showed much larger-than-expected increases in stocks of gasoline and a surprise drop distillates inventories. Stockpiles of gasoline in the U.S. East Coast swelled to the highest weekly levels on record for this time of year, when refiners typically begin storing barrels ahead of summer driving season.
“At the end of the day, the focus is on the bigger picture and the bigger picture still looks positive which is why we are still up,” said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.
“The bigger picture includes the OPEC/non-OPEC supply cuts and the IEA report, which was pretty supportive.”
Oil prices have gyrated this year as the market’s focus has swung from hopes that oversupply may be curbed by output cuts announced by the Organization of the Petroleum Exporting Countries and other producers to fears that a rebound in U.S. shale production could swamp any such reductions.
The head of the IEA, Fatih Birol, said in Davos, Switzerland, that he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.
It raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.
Still, analysts warned that keeping the cuts was crucial, particularly as a resilient U.S. shale industry threatened to add more barrels to the market.
“Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive,” PVM Oil Associates analyst Tamas Varga said in a note.
OPEC, which is cutting oil output alongside independent producer Russia for the first time in years, wants a lasting partnership with Moscow, Saudi Energy Minister Khalid al Falih told Reuters. He also said extending the deal for a full year if the market rebalances was not needed.
OPEC itself said its cuts would help balance the market, and said its output had already fallen in December. But it also pointed to the possibility of a rebound in U.S. output amid higher oil prices.