Crude futures rallied late Wednesday, jumping more than $ 1 a barrel after briefly trading lower on a bearish U.S. government report early in the day.
Oil markets have been trapped in a range as traders wait to see whether OPEC production cuts can outweigh U.S. supply growth.
Oil futures pared gains immediately after weekly U.S. supply data showed a much bigger build than expected, but prices rebounded.
Brent crude LCOc1 settled up $ 1.22 a barrel at $ 56.80. U.S. crude CLc1 settled up $ 1.07 a barrel at $ 53.88.
“U.S. crude could be in consolidation from $ 51 to $ 55 for awhile, until there’s more evidence on OPEC production cuts or more evidence of production picking up or stabilizing in the U.S.,” said Bill Baruch, senior market strategist at iitrader.com.
U.S. crude stockpiles for the week ended Friday rose 6.47 million barrels, nearly double the expected increase. The larger-than expected build initially exacerbated concerns that efforts to cut production globally may not be sufficient to reduce a supply glut.
“It was a very bearish report on several fronts, from the large across-the-board builds in the major categories, and the continued decline in refinery runs,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York. “Crude oil imports were elevated again, as well, with the Gulf Coast seeing a big increase in crude oil inventories.”
Still, data in the report also suggested U.S. production could be lower in the week, Baruch said. That energized bulls to push crude upward, he said.
Russia cut production in January by around 100,000 barrels per day (bpd), according to data seen by Reuters. A day earlier, a Reuters survey found high compliance by OPEC with agreed cuts. [OPEC/O]
“Any hopes of a sustained recovery in price will depend on increasing efforts by OPEC to curb output though the prospect of an upside breakout will be undermined by the budding revival in U.S. crude production,” Stephen Brennock of oil broker PVM said.
The cuts by Russia and the Organization of the Petroleum Exporting Countries follow last year’s agreement to lower supplies by a combined 1.8 million bpd, to prop up prices that still are half their mid-2014 levels.
A Russian cut of 100,000 bpd would be a third of Moscow’s pledge to reduce its output by 300,000 bpd. However, Russia has said its planned output reduction would be gradual.
OPEC has implemented most of its reduction. A Reuters survey on Tuesday found that OPEC members in January have delivered on about 82 percent of their deal to lower supply by 1.16 million bpd.
“With data now coming out for the first month affected by the OPEC and non-OPEC output cuts, it appears fairly safe to say that compliance with the pledged reduction has been relatively high,” analysts at JBC Energy said in a report.
JBC estimates OPEC delivered on 88 percent of its pledged reduction. Petro-Logistics, a company which tracks OPEC supply, also estimates compliance has been high.
(Additonal reporting by Henning Gloystein and Alex Lawler; Editing by Meredith Mazzilli and David Gregorio)