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Oil prices cut losses, rally after US inventory data
[LONDON] Oil prices reversed earlier losses and rose on Wednesday after weekly data showed an unexpectedly large drawdown in US crude inventories.
Data from the US Energy Information Administration showed crude stocks fell by 4.2 million barrels last week, more than twenty times analysts' expectations for an decrease of 184,000 barrels.
But inventories are at 459.68 million barrels, up 20 percent so far this year and just 31 million barrels down from April's highs.
"Crude oil got a boost after the ... crude oil drawdown of 4.2 million when a small build ... was expected. The news came just after Brent crude oil reached new six-month lows on Tuesday so (this) could trigger a larger bout of short-covering," CMC Markets analyst Jasper Lawler said in a note.
Front-month Brent futures were at US$53.82 a barrel by 1450 GMT, up 52 cents on the day, having recovered from an intraday low of US$52.51.
Brent hit its lowest since early February on Tuesday, touching US$52.28 after a meltdown in Chinese equities raised concern over the health of the world's top commodity consumer.
US crude for September delivery last traded at US$48.80, up 82 cents on the day.
A mounting global surplus of oil has stripped about 8 per cent off the price of crude oil so far this year and, this week's US stock data notwithstanding, the pace of the build-up in inventory is showing few signs of reversing.
A Reuters survey on Tuesday showed members of the Organization of the Petroleum Exporting Countries produced around 3 million barrels per day (bpd) of oil more than daily demand in the second quarter, compared with around 2 million bpd in the first three months of the year.
The Federal Reserve meets later in the day, but market expectations of a September rise in interest rates are fading, leaving the dollar down against a basket of currencies.
Oil prices recovered from multi-month lows on Tuesday after data from industry group the American Petroleum Institute showed US commercial crude stocks fell by 1.9 million barrels last week against analysts' expectations for a draw of 184,000.
But the inventory level of 462 million barrels reported by the API, compared with 383 million at the start of this year, reflected the extent of US oversupply.
"Prices seem to have found the bottom of this rout as prices rebounded off a support of US$46.92 and US$52.68 for West Texas Intermediate and Brent," Phillip Futures said in a note.