Oil edges up, but signs point to growing glut of barrels
LONDON – Oil prices rose on Thursday, paring some of the losses incurred a day earlier after data showed U.S. inventories had risen for a sixth week and weakness spread through the physical market.
On Wednesday, oil fell nearly 4 percent after the Energy Information Administration said U.S. crude inventories added 2.85 million barrels last week, in line with forecasts, despite a drop in imports to their lowest level since 1991.
Brent crude futures LCOc1 were up 17 cents at $48.75 a barrel by 1135 GMT on Thursday, nearly 4 percent below four-week highs above $50 hit two days earlier.
U.S. crude futures CLc1 rose 10 cents to $46.42 a barrel, having lost 3 percent the day before.
"Production was a bit higher in the U.S. It wasn't a good number and I think that kind of killed the sentiment," Petromatrix analyst Olivier Jakob said.
"For me, (Brent) is still really in a range. Each time it goes up $2, people get a bit excited, but then it goes back down $2. Technically, there is no trend," he said.
The discount in the price of oil for immediate delivery relative to that for delivery in a year, or contango, neared its largest in nearly two months this week, touching $7 a barrel.
This gap in price can often reflect the perception that near-term demand is falling short of supply.
Ample supply of North Sea crude, which underpins the benchmark futures price, has pushed physical prices to their lowest since June. [CRU/E]
"The contango in Brent futures could widen more than the current levels ... just looking at the weight of the physical market," Jakob said.
Contributing to the generally bearish sentiment was an internal OPEC document seen by Reuters that showed weaker demand in the next few years for oil from the group.
OPEC oil ministers will meet on Dec. 4 to decide whether to extend their year-old strategy of allowing prices to fall to slow higher-cost rival supply.
OPEC, along with Russia, is unlikely to change tack, BMI Research said in a note on Thursday.
"Our view remains that OPEC and Russia will continue on their strategy of producing as much oil as possible to squeeze out higher-cost producers," BMI said.
"With oil production of major producers strong, falling output from U.S. shale will be insufficient to balance the oversupplied oil market over the next two years," it said. –Reuters